Shorting Activity, Private Information Flow, and Return Predictability: International Evidence from IFRS Adoption

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

Shorting Activity, Private Information Flow, and Return Predictability: International Evidence from IFRS Adoption

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 2005 mandatory adoption of International Financial Reporting Standards (IFRS) as an exogneous information shock and the equity-lending market as a laboratory to capture private information revelation, we show that the ability of shorting to predict negative stock returns drops after the shock of mandatory IFRS, thus reducing short-sellers’ profitability. We also show that shorting profitability decreases due to a decrease in investors’ divergence of opinion coincident with IFRS. These results imply that the shock of IFRS had the effect of crowding out short-sellers’ use of private information, consistent with a substitutional relation between public and private information.

Original language	English
Publication status	Published - 17 Mar 2018
Event	East Lake Accounting Forum (2018) - Huazhong University of Science and Technology (HUST), Wuhan, China Duration: 17 Mar 2018 → 18 Mar 2018 http://cm.hust.edu.cn/info/1204/21571.htm http://cm.hust.edu.cn/info/1204/21571_1.htm

Conference

Conference	East Lake Accounting Forum (2018)
Country/Territory	China
City	Wuhan
Period	17/03/18 → 18/03/18
Internet address	http://cm.hust.edu.cn/info/1204/21571.htm http://cm.hust.edu.cn/info/1204/21571_1.htm

Research Keywords

equity lending market
short selling
mandatory IFRS
equity return predictability
private and public information

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@conference{0b7c8417ddbf490189be1164d5517249,

title = "Shorting Activity, Private Information Flow, and Return Predictability: International Evidence from IFRS Adoption",

abstract = "Employing the 2005 mandatory adoption of International Financial Reporting Standards (IFRS) as an exogneous information shock and the equity-lending market as a laboratory to capture private information revelation, we show that the ability of shorting to predict negative stock returns drops after the shock of mandatory IFRS, thus reducing short-sellers{\textquoteright} profitability. We also show that shorting profitability decreases due to a decrease in investors{\textquoteright} divergence of opinion coincident with IFRS. These results imply that the shock of IFRS had the effect of crowding out short-sellers{\textquoteright} use of private information, consistent with a substitutional relation between public and private information.",

keywords = "equity lending market, short selling, mandatory IFRS, equity return predictability, private and public information",

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

year = "2018",

month = mar,

day = "17",

language = "English",

note = "East Lake Accounting Forum (2018) ; Conference date: 17-03-2018 Through 18-03-2018",

url = "http://cm.hust.edu.cn/info/1204/21571.htm, http://cm.hust.edu.cn/info/1204/21571_1.htm",

}

TY - CONF

T1 - Shorting Activity, Private Information Flow, and Return Predictability

T2 - East Lake Accounting Forum (2018)

AU - Griffin, Paul A.

AU - Hong, Hyun A.

AU - Kalcheva, Ivalina

AU - Kim, Jeong-Bon

PY - 2018/3/17

Y1 - 2018/3/17

N2 - Employing the 2005 mandatory adoption of International Financial Reporting Standards (IFRS) as an exogneous information shock and the equity-lending market as a laboratory to capture private information revelation, we show that the ability of shorting to predict negative stock returns drops after the shock of mandatory IFRS, thus reducing short-sellers’ profitability. We also show that shorting profitability decreases due to a decrease in investors’ divergence of opinion coincident with IFRS. These results imply that the shock of IFRS had the effect of crowding out short-sellers’ use of private information, consistent with a substitutional relation between public and private information.

AB - Employing the 2005 mandatory adoption of International Financial Reporting Standards (IFRS) as an exogneous information shock and the equity-lending market as a laboratory to capture private information revelation, we show that the ability of shorting to predict negative stock returns drops after the shock of mandatory IFRS, thus reducing short-sellers’ profitability. We also show that shorting profitability decreases due to a decrease in investors’ divergence of opinion coincident with IFRS. These results imply that the shock of IFRS had the effect of crowding 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 - mandatory IFRS

KW - equity return predictability

KW - private and public information

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

Y2 - 17 March 2018 through 18 March 2018

ER -

Shorting Activity, Private Information Flow, and Return Predictability: International Evidence from IFRS Adoption

Abstract

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Research Keywords

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