Difference in Information Content of Extreme Short Selling Activity Events and the Impact on Stock Returns

  • Sebastian P. Werner


This chapter continues with the second part of the empirical investigation. It measures and investigates the information content of extreme short selling activity events and their impact on stock returns of firms with and without convertible bonds. This analysis is primarily intended to test the remaining predictions linked to Proposition 2. The objective is therefore to examine whether extreme arbitrage-based short selling activity, i.e. the extreme aggregate short selling in firms with convertible bonds, has a significantly lower information content and thus a weaker negative impact on stock returns as compared to extreme valuation-based short selling activity, i.e. the extreme aggregate short selling in firms without convertible bonds. To do so, the event study of Section 6.1 measures abnormal buy-and-hold returns following the events. The results imply a lower information content of short sales for event observations with convertible bonds outstanding and indicate a temporary downward price pressure as a reflection of uninformed short selling activity over the 20 day post-event window. This is further analyzed in Section 6.2, which investigates the direct impact of events’ extreme short selling activity on the stock returns and expands the testing for price pressure.


Stock Return Abnormal Return Event Window Short Selling Short Sale 
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© Gabler Verlag | Springer Fachmedien Wiesbaden GmbH 2010

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  • Sebastian P. Werner

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