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ARE SHORT SELLERS INFORMED? EVIDENCE FROM CREDIT RATING AGENCY ANNOUNCEMENTS
Author(s) -
Shi Jian,
Wang Junbo,
Zhang Ting
Publication year - 2017
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12121
Subject(s) - downgrade , credit rating , business , stock (firearms) , agency (philosophy) , private information retrieval , bond credit rating , credit enhancement , finance , actuarial science , monetary economics , economics , credit reference , credit risk , mechanical engineering , philosophy , statistics , computer security , epistemology , engineering , mathematics , computer science
Although constrained by rules and regulations, informed short selling (tipping) is present before negative credit watch and certain types of rating downgrade announcements. Using entity credit rating and daily short sale data from April 2004 to December 2009, we find that preannouncement abnormal short selling significantly increases toward the announcement dates and is negatively related to postannouncement stock returns. Furthermore, short selling driven by tipping is more pronounced before more severe and more surprising rating downgrades. This study provides evidence favoring the private information hypothesis (tipping) in the ongoing debate of the informational advantage of short sellers.