NEWS

University of North Carolina researchers at Chapel Hill find that “short sellers’ advantage arises from their ability to process publicly available information.”

The researchers related a database of short selling transactions to another of news releases to reach their findings.

“We show that the most profitable short sales are not from market makers, but from clients, and we show that these client short sales are particularly profitable in the presence of news. Furthermore, we show that the ratio of short sales to total volume is nearly constant through news periods, and when we do find differences between the timing of short sellers’ trades and the overall market, we find that relative to other types of trading there is a significant increase in short selling after news stories. We find that short sellers’ ability to predict returns is concentrated in many of the news categories in which short sellers trade relatively late; a finding consistent with the idea that short sellers’ advantage arises from their ability to process publicly available information.”