Portal de Periódicos da CAPES

Supply and Demand Shifts in the Shorting Market

2007; Wiley; Volume: 62; Issue: 5 Linguagem: Inglês

10.1111/j.1540-6261.2007.01269.x

1540-6261

Lauren Cohen, Karl B. Diether, Christopher J. Malloy,

Auditing, Earnings Management, Governance

ABSTRACT Using proprietary data on stock loan fees and quantities from a large institutional investor, we examine the link between the shorting market and stock prices. Employing a unique identification strategy, we isolate shifts in the supply and demand for shorting. We find that shorting demand is an important predictor of future stock returns: An increase in shorting demand leads to negative abnormal returns of 2.98% in the following month. Second, we show that our results are stronger in environments with less public information flow, suggesting that the shorting market is an important mechanism for private information revelation.