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Hu, Ting, and Yanzhe Chi: Can short selling activity predict the future returns of non-shortable peer firms?

来源: 发布日期:2019-4-27 19:38:41 编辑: 访问次数:

  Will short-selling activities impact related peer firms? We explore this question in this paper by examining the role of short-selling activity in information transfer and cross-predictability, using the unique institutional setting of short-sales activity in the Chinese stock market. Beginning in 2010, the short selling of selected stocks in the Chinese stock market was allowed for the first time, with other stocks remaining non-shortable. Using this setting, we examine the cross-predictive ability of industry-level short flow with respect to the future abnormal returns of non-shortable firms in the same industry. We find that the average of short flow at the industry-level is negatively associated with the future abnormal returns of non-shortable peer firms in the same industry. The result is persistent and is not driven by differences in firm characteristics, lead-lag effects, the effect oshort-selling constraints, or short sellers’ concentration. Further investigation shows that the effect of industry short flow survives with the control of firm-level shorting and negatively related to future changes in the non-shortable firms’ fundamentals, implying that short-selling activity contains valuable information that also affects other related firms.

  Pacific-Basin Finance Journal, 2019(2).

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