Jesse Blocher, Peter Haslag, and Chi Zhang
Working Paper
Publication year: 2018

Most research on short selling treats short sellers as relatively homogenous. We show that there are at least two distinct groups of short sellers, which we call Short Traders and Short Investors. Short Traders are more risk-averse and have shorter horizons. They trade in easy-to-borrow stocks over just a few days and are informed about events such as analyst downgrades. Short Investors short and hold expensive-to-borrow positions over long horizons (months), and are willing to take on substantial risk, measured as both price and lending fee volatility. Short Investors are informed about firm fundamentals. While both types of short sellers are informed and their behavior predicts negative returns, we show that they are not informed about the same things and predict returns over different time horizons.

  • Thanks to discussants Owen Lamont and Jules Van Binsbergen and participants at the Conference on Financial Decisions in Asset Markets at Wharton for helpful comments.
  • Thanks to brown bag participants at Vanderbilt University for helpful comments.
  • Presented at the Northern Finance Association conference, September 2018.
  • Presented at the Financial Management Association meetings, October 2018.
  • Presented at the Rodney L. White Center Conference on Financial Decisions in Asset Markets at Wharton on March 16, 2018.

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