DP12658 Show us your shorts!

Author(s): Bige Kahraman, Salil Pachare
Publication Date: January 2018
Keyword(s): InformationalEfficiency, PublicDisclosure, ShortInterest
JEL(s):
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12658

How does greater public disclosure of arbitrage activity and informed trading affect informational efficiency? To answer this, we exploit rule amendments in U.S. securities markets, which increased the frequency of public disclosure of short positions. Higher public disclosure can potentially improve or deteriorate informational efficiency. We find that with more frequent disclosure, short-sellers' information is incorporated into prices faster, improving informational efficiency. In support of the mechanism driving this result, we document significant market reactions to short interest announcements, suggesting investor learning, and furthermore, we find increases in short-selling activity and reductions in short-sellers' holding periods with the rule amendments.