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Why Do Short Sellers Like Qualitative News?

Published online by Cambridge University Press:  21 April 2017

Bastian von Beschwitz ,
Oleg Chuprinin  and
Massimo Massa
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Abstract

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Short sellers trade more on days with qualitative news, that is, news containing fewer numbers. We show that this behavior is not informationally motivated but can be explained by short sellers exploiting higher liquidity on such days. We document that liquidity and noise trading increase in the presence of qualitative news, enabling short sellers to better disguise their informed trades. Natural experiments support our findings. Qualitative news has a bigger effect on short sellers’ trading after a decrease in liquidity following the stock’s deletion from the Standard & Poor’s 500 index and a smaller effect when investor attention is distracted by the Olympic Games.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 52 , Issue 2 , April 2017 , pp. 645 - 675
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2017 

Footnotes

1

We thank the UniCredit & Universities Knight of Labor Ugo Foscolo Foundation for a research grant that made this study possible. We have benefited from feedback provided by Paul Malatesta (the editor), Ingrid Werner (the referee), and seminar participants at INSEAD. A prior version of this paper was titled “Trading on Fluffy News: The Effect of Information Tangibility on Short Sellers’ Behavior.”

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