Informed or speculative: Short selling analyst recommendations

Christophe et al. (2010) find evidence of abnormal short activity prior to analyst downgrades and argue that short sellers may be violating SEC insider-trading laws by trading on information obtained from analysts about upcoming downgrades. However, observing abnormal shorting prior to downgrades is not tantamount to determining that short sellers are trading on tips from analysts unless shorting is abnormally low prior to upgrades. This paper revisits this issue. While we observe abnormal shorting prior to downgrades, we also find markedly higher shorting prior to upgrades. In fact, the short-selling patterns surrounding both downgrades and upgrades are remarkably symmetric indicating that short sellers during the pre-recommendation period are not unusually informed about the direction of upcoming recommendation changes. If anything, our findings indicate that short selling prior to analyst recommendations is more likely speculative than informed.     

REIT Short Sales and Return Predictability

We examine REIT short sale transactions and show REITs are shorted less frequently than non-REITs. Results also show short sellers are less able to predict negative future returns for REITs, relative to non-REITs, which is consistent with increased pricing efficiency for REITs and suggests REIT assets are more transparent. In a broader context, these results suggest differences in transparency across asset types influence the effectiveness of short selling. Results showing REIT short sellers are contrarian imply traders target REITs that are performing well instead of underperforming REITs, suggesting restrictions on REIT short sales should be re-evaluated.     

Short selling around dividend announcements and ex-dividend days

We examine short selling around dividend announcements and ex-dividend dates. Contrary to our initial expectation, we do not find abnormally high short-selling activity prior to announced dividend decreases, which runs counter to the argument that short sellers have the ability to acquire private information before its public dissemination. However, we find that the common negative relation between current short selling and future daily returns prior to unfavorable dividend announcements is similar to the negative relation during non-event times, suggesting that dividend announcements do not provide unusual trading opportunities for informed traders (Gonedes, 1978, and Benartzi et al., 1997). Around ex-dividend dates, we do find abnormal short selling, which may be explained by the return pattern around ex-dividend days documented by Lakonishok and Vermaelen (1986), who suggest that demand for a particular stock by dividend capture traders drives stock prices above their fundamental value thus providing a profitable trading opportunity for short sellers. Consistent with this conjecture, we find that both the level of short selling and the return predictability of short selling is markedly higher on and after the ex-dividend day than during non-event times.     

Comparing the information in short sales and put options

Prior work shows that both short sales and put options contain information about future stock prices. In this study, we compare the return predictability in short sales to the return predictability in put options. The motivation for this comparison is based on the theoretical argument that informed traders can choose between short sales and put options when establishing short positions in a particular stocks. Results in this paper suggest that the underperformance of stocks with high short-selling activity is approximately four times larger than the underperformance of stocks with high put-option activity. While stocks that are most likely to face binding short-sale constraints drive the underperformance caused by put-option activity, we still find that short sales are generally more informative about future prices.     

Continuing Progress? Trends in Occupational Segregation in the United States over the 1970s and 1980s

This study uses comparable data on 470 detailed occupations from the 1970, 1980, and 1990 Censuses to analyze trends in occupational segregation in the United States in the 1980s and compare them in detail to the 1970s experience of declining segregation. We find that the trend towards reduced segregation did indeed continue into the 1980s at only a slightly slower pace. In both decades, changes in sex composition within occupations accounted for the major share of the decline in segregation (compared to changes in the mix of occupations in the economy). We also find that the pattern of changes in the sex composition of occupations and in the employment distribution of workers that produced the observed reductions in segregation were remarkably similar in each of these two periods. This similarity potentially poses some problems for the future. As women continue to enter the same areas, resegregation, which we found to have relatively moderate effects in the 1970s and 1980s, becomes an increasing possibility. Continued progress towards reducing occupational segregation requires that women succeed in entering a broader range of traditionally male occupations and/or a greater flow of men into traditionally female occupations.     

Does mutual fund ownership reduce stock price clustering? Evidence from active and index funds

Review of Quantitative Finance and Accounting - The literature is rich with examples of price clustering in financial markets. This study focuses on the relation between mutual fund ownership (both...     

Firm Opacity and the Clustering of Stock Prices: the Case of Financial Intermediaries

Journal of Financial Services Research - In this study, we develop and test the hypothesis that because of opacity, the stock prices of financial firms will cluster on round fractions more than the...