Retail Short Selling and Stock Prices
Coauthor(s): Eric Kelley.
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This study tests asset pricing theories that feature short selling using a large database of retail trading. We find that retail short selling negatively predicts firms' monthly stock returns and news tone, even controlling for overall short selling. Predictability from retail shorting is strongest in stocks with low analyst and media coverage, high idiosyncratic volatility, and high turnover; it does not depend on short sales constraints. Retail buying positively predicts returns in similar types of stocks. These results are consistent with the theory that retail short selling informs market prices, but are inconsistent with alternative theories in which retail short selling is a proxy for sentiment or attention.
Kelley, Eric, and Paul C. Tetlock. "Retail Short Selling and Stock Prices." Columbia Business School, October 2013.