Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • October 2007
  • Article
  • Journal of Finance

Supply and Demand Shifts in the Shorting Market

By: Lauren Cohen, Karl B. Diether and Christopher J. Malloy
  • Format:Print
  • | Pages:36
ShareBar

Abstract

Using proprietary data on stock loan fees and quantities from a large institutional investor, we examine the link between the shorting market and stock prices. Employing a unique identification strategy, we isolate shifts in the supply and demand for shorting. We find that shorting demand is an important predictor of future stock returns: An increase in shorting demand leads to negative abnormal returns of 2.98% in the following month. Second, we show that our results are stronger in environments with less public information flow, suggesting that the shorting market is an important mechanism for private information revelation.

Keywords

Analytics and Data Science; Stocks; Financing and Loans; Price; Strategy; Demand and Consumers; Forecasting and Prediction; Investment Return; Markets; Information

Citation

Cohen, Lauren, Karl B. Diether, and Christopher J. Malloy. "Supply and Demand Shifts in the Shorting Market." Journal of Finance 62, no. 5 (October 2007): 2061–2096. (Winner of Smith Breeden Prize for the Best Paper Published in the Journal of Finance in Asset Pricing (Distinguished Paper) 2007.)
  • Find it at Harvard
  • Read Now

About The Author

Lauren H. Cohen

Finance
→More Publications

More from the Authors

    • May 2025
    • Faculty Research

    'Net Zero in Action': Impact Investing at the McKnight Foundation

    By: Lauren Cohen, Christina R. Wing and Sophia Pan
    • May 2025
    • Faculty Research

    The Micro-Family Office: Aamir Rehman

    By: Lauren Cohen and Sophia Pan
    • April 2025
    • Faculty Research

    Techint: Strategic Choices for Community Impact

    By: Lauren Cohen, Virak Prum, Kenneth Charman, Pedro Levindo and Mariana Cal
More from the Authors
  • 'Net Zero in Action': Impact Investing at the McKnight Foundation By: Lauren Cohen, Christina R. Wing and Sophia Pan
  • The Micro-Family Office: Aamir Rehman By: Lauren Cohen and Sophia Pan
  • Techint: Strategic Choices for Community Impact By: Lauren Cohen, Virak Prum, Kenneth Charman, Pedro Levindo and Mariana Cal
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College.