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Short Interest, Returns, and Unfavorable Fundamental Information
Author(s) -
Akbas Ferhat,
Boehmer Ekkehart,
Erturk Bilal,
Sorescu Sorin
Publication year - 2016
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12144
Subject(s) - earnings , short interest ratio , stock (firearms) , public information , interest rate , economics , value (mathematics) , monetary economics , financial economics , business , finance , computer science , mechanical engineering , paleontology , context (archaeology) , machine learning , engineering , biology , internet privacy
Several months before information becomes public, the level of short interest contains value‐relevant information about publicly traded corporations. Short interest predicts future bad news, negative earnings surprises, and downward revisions in analyst earnings forecasts. This informational content is stronger for stocks that are harder to short. We also find that nearly half of the well‐known cross‐sectional relation between short interest and future stock returns is related to future changes in firms’ value‐relevant information. Our results suggest that short interest predicts future returns, in part, due to short sellers’ ability to uncover unfavorable information about firms.