daske - Do short sale transactions precede bad news...

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Do short sale transactions precede bad news events? * Holger Daske Scott A. Richardson İ rem Tuna The Wharton School, University of Pennsylvania, Philadelphia, PA 19104-6365 United States. First Draft: May 10, 2005 Current Draft: October 18, 2005 ABSTRACT: Do short sale transactions precede bad news events? Not recently. This paper examines short sale transactions around significant news events. Using a novel and comprehensive dataset covering daily short sale transactions for 4,193 securities on the New York Stock Exchange for the period April 1, 2004 through March 31, 2005, we find no evidence that short sale transactions are concentrated prior to bad news events. This challenges prior research that has found short sale transactions have tended to precede stock price declines. Additional analysis reveals that there is no reliable evidence of daily changes in short sales transactions leading daily stock returns, inconsistent with the notion that short sale transactions (at least in the aggregate) are based on private information. Data Availability: The data used in this study are available from the sources identified in the study. * We would like to thank Mark Bradshaw, Stephen Brown, Todd Doersch from Cognitive Investment Management LLC, Matthew Molinari from NYSE, Adam Reed and seminar participants at Carnegie Mellon University and University of Minnesota for comments. All errors are our own.
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Do short sale transactions precede bad news events? ABSTRACT: Do short sale transactions precede bad news events? Not recently. This paper examines short sale transactions around significant news events. Using a novel and comprehensive dataset covering daily short sale transactions for 4,193 securities on the New York Stock Exchange for the period April 1, 2004 through March 31, 2005, we find no evidence that short sale transactions are concentrated prior to bad news events. This challenges prior research that has found short sale transactions have tended to precede stock price declines. Additional analysis reveals that there is no reliable evidence of daily changes in short sales transactions leading daily stock returns, inconsistent with the notion that short sale transactions (at least in the aggregate) are based on private information. Keywords: short selling; earnings announcements; management forecasts. Data Availability: The data used in this study are available from the sources identified in the study.
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1 I. INTRODUCTION Sophisticated investors with access to private information about impending bad news in a company can trade profitably by way of short selling. It has long been argued that short sellers represent a sophisticated subset of investors given the relative costs of short selling (e.g., Diamond and Verrecchia, 1987). Prior research suggests that short sellers are, on average, able to predict lower future performance (e.g., Asquith and Muelbroek, 1996, Aitken et al. 1998, Desai, et al. 2002, Christophe, Ferri and Angel, 2004). However, current research has highlighted the fragility of these relations in that
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This note was uploaded on 12/08/2011 for the course CIS 625 taught by Professor Michaelkearns during the Spring '12 term at Pennsylvania State University, University Park.

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daske - Do short sale transactions precede bad news...

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