Publication Type
Journal Article
Version
acceptedVersion
Publication Date
2-2013
Abstract
We show that stock prices are more accurate when short sellers are more active. First, in a large panel of NYSE-listed stocks, intraday informational efficiency of prices improves with greater shorting flow. Second, at monthly and annual horizons, more shorting flow accelerates the incorporation of public information into prices. Third, greater shorting flow reduces post-earnings-announcement drift for negative earnings surprises. Fourth, short sellers change their trading around extreme return events in a way that aids price discovery and reduces divergence from fundamental values. These results are robust to various econometric specifications, and their magnitude is economically meaningful.
Keywords
Informational efficiency of prices, Price discovery, Short selling
Discipline
Business | Portfolio and Security Analysis
Research Areas
Finance
Publication
Review of Financial Studies
Volume
26
Issue
2
First Page
287
Last Page
322
ISSN
0893-9454
Identifier
10.1093/rfs/hhs097
Publisher
Oxford University Press
Citation
BOEHMER, Ekkehart and WU, Juan Julie.
Short selling and the price discovery process. (2013). Review of Financial Studies. 26, (2), 287-322.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/4688
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1093/rfs/hhs097
Comments
Runner up, RFS Best Paper Award 2014.