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Supply and Demand Shifts in the Shorting Market
Author(s) -
COHEN LAUREN,
DIETHER KARL B.,
MALLOY CHRISTOPHER J.
Publication year - 2007
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2007.01269.x
Subject(s) - stock (firearms) , supply and demand , monetary economics , private information retrieval , business , stock market , economics , demand shock , microeconomics , computer science , mechanical engineering , paleontology , horse , engineering , biology , computer security
Using proprietary data on stock loan fees and quantities from a large institutional investor, we examine the link between the shorting market and stock prices. Employing a unique identification strategy, we isolate shifts in the supply and demand for shorting. We find that shorting demand is an important predictor of future stock returns: An increase in shorting demand leads to negative abnormal returns of 2.98% in the following month. Second, we show that our results are stronger in environments with less public information flow, suggesting that the shorting market is an important mechanism for private information revelation.