Shorting Activities and Stock Return Predictability: Evidence from an Information Stock

Paul A. Griffin; Hyun A. Hong; Ivalina Kalcheva; Jeong-Bon Kim

Shorting Activities and Stock Return Predictability: Evidence from an Information Stock

Paul A. Griffin^*, Hyun A. Hong, Ivalina Kalcheva, Jeong-Bon Kim

^*Corresponding author for this work

Department of Accountancy

Research output: Conference Papers › RGC 31A - Invited conference paper (refereed items) › Yes › peer-review

Abstract

Employing the international equity lending markets as a laboratory to capture private information revelation, we show that the ability of shorting to predict negative stock returns drops after the public information shock of a mandatory accounting regulation, thus reducing short-sellers’ profitability. We also show that shorting profitability drops due to a decrease in investors’ divergence of opinion coincident with the public information shock. These results imply that the introduction of a mandatory accounting regulation can crowd out short-sellers’ use of private information, consistent with a substitutional relation between public and private information.

Original language	English
Publication status	Published - Oct 2018
Event	4th ICGS Annual Conference: Navigating Corporate Governance in Emerging Markets - Fudan University, Shanghai, China Duration: 13 Oct 2018 → 14 Oct 2018 http://www.fdsm.fudan.edu.cn/icgs2018/

Seminar

Seminar	4th ICGS Annual Conference
Country/Territory	China
City	Shanghai
Period	13/10/18 → 14/10/18
Internet address	http://www.fdsm.fudan.edu.cn/icgs2018/

Research Keywords

Equity lending market
Short selling
Equity return predictability
Regulatory accounting shock
Private and public information

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@conference{797f94be1e1742e0a9177e35e038efb0,

title = "Shorting Activities and Stock Return Predictability: Evidence from an Information Stock",

abstract = "Employing the international equity lending markets as a laboratory to capture private information revelation, we show that the ability of shorting to predict negative stock returns drops after the public information shock of a mandatory accounting regulation, thus reducing short-sellers{\textquoteright} profitability. We also show that shorting profitability drops due to a decrease in investors{\textquoteright} divergence of opinion coincident with the public information shock. These results imply that the introduction of a mandatory accounting regulation can crowd out short-sellers{\textquoteright} use of private information, consistent with a substitutional relation between public and private information. ",

keywords = "Equity lending market, Short selling, Equity return predictability, Regulatory accounting shock, Private and public information",

author = "Griffin, {Paul A.} and Hong, {Hyun A.} and Ivalina Kalcheva and Jeong-Bon Kim",

year = "2018",

month = oct,

language = "English",

note = "4th ICGS Annual Conference : Navigating Corporate Governance in Emerging Markets ; Conference date: 13-10-2018 Through 14-10-2018",

url = "http://www.fdsm.fudan.edu.cn/icgs2018/",

}

TY - CONF

T1 - Shorting Activities and Stock Return Predictability

T2 - 4th ICGS Annual Conference

AU - Griffin, Paul A.

AU - Hong, Hyun A.

AU - Kalcheva, Ivalina

AU - Kim, Jeong-Bon

PY - 2018/10

Y1 - 2018/10

N2 - Employing the international equity lending markets as a laboratory to capture private information revelation, we show that the ability of shorting to predict negative stock returns drops after the public information shock of a mandatory accounting regulation, thus reducing short-sellers’ profitability. We also show that shorting profitability drops due to a decrease in investors’ divergence of opinion coincident with the public information shock. These results imply that the introduction of a mandatory accounting regulation can crowd out short-sellers’ use of private information, consistent with a substitutional relation between public and private information.

AB - Employing the international equity lending markets as a laboratory to capture private information revelation, we show that the ability of shorting to predict negative stock returns drops after the public information shock of a mandatory accounting regulation, thus reducing short-sellers’ profitability. We also show that shorting profitability drops due to a decrease in investors’ divergence of opinion coincident with the public information shock. These results imply that the introduction of a mandatory accounting regulation can crowd out short-sellers’ use of private information, consistent with a substitutional relation between public and private information.

KW - Equity lending market

KW - Short selling

KW - Equity return predictability

KW - Regulatory accounting shock

KW - Private and public information

M3 - RGC 31A - Invited conference paper (refereed items)

Y2 - 13 October 2018 through 14 October 2018

ER -

Shorting Activities and Stock Return Predictability: Evidence from an Information Stock

Abstract

Seminar

Research Keywords

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