Publications
Publications
- October 2007
- Journal of Finance
Supply and Demand Shifts in the Shorting Market
By: Lauren Cohen, Karl B. Diether and Christopher J. Malloy
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
Data and Data Sets; 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.)
About The Author
