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Loews Philadelphia, Commonwealth Hall C
Hosted By:
American Finance Association
To answer this, we exploit rule amendments in U.S. securities markets which
increased the frequency of public disclosure of short interest. Greater publicity can
potentially improve or deteriorate informational efficiency. We find that with more
frequent disclosure, short-sellers’ private information is incorporated into prices faster,
improving informational efficiency. We also document significant market reactions to
short interest announcements, suggesting investor learning, and furthermore, increases
in short-sellers’ returns and reductions in their holding periods.
Information Transmission and Trading: Empirical
Paper Session
Saturday, Jan. 6, 2018 2:30 PM - 4:30 PM
- Chair: Vyacheslav Fos, Boston College
When Anomalies Are Publicized Broadly, Do Institutions Trade Accordingly?
Abstract
We study whether institutional investors trade on stock market anomalies. Using 14 well-documented anomalies, we observe an increase in anomaly-based trading when information about the anomalies is readily available through academic publication and the release of necessary accounting data. This finding is more pronounced among hedge funds and transient institutions, the subset of investors who likely have the ability and incentives to act on the anomalies. We directly relate the increase in trading to the observed decay in post-publication anomaly returns. Our findings support the role of institutional investors in the arbitrage process and in improving market efficiency.Show Us Your Shorts!
Abstract
What is the impact of greater publicity in the shorting market on informational efficiency?To answer this, we exploit rule amendments in U.S. securities markets which
increased the frequency of public disclosure of short interest. Greater publicity can
potentially improve or deteriorate informational efficiency. We find that with more
frequent disclosure, short-sellers’ private information is incorporated into prices faster,
improving informational efficiency. We also document significant market reactions to
short interest announcements, suggesting investor learning, and furthermore, increases
in short-sellers’ returns and reductions in their holding periods.
Inside Brokers
Abstract
We identify the broker each corporate insider trades through, and show that analysts and mutual fund managers affiliated with such "inside brokers" retain a substantial information advantage on the insider's firm, even after these trades are disclosed. Affiliated analysts issue 10-20% more accurate earnings forecasts, and affiliated funds trade the insider's stock much more profitably than their peers, following insider trades through their brokerage. Our results challenge the prevalent perception that information asymmetry arising from insider trading is acute only before trade disclosure, and suggest that brokers facilitating these trades are in a unique position to exploit such an asymmetry.Discussant(s)
Kenneth Ahern
,
University of Southern California
David R. McLean
,
Georgetown University
Charles Jones
,
Columbia University
Brad Barber
,
University of California-Davis
JEL Classifications
- G1 - General Financial Markets