Working Paper: CEPR ID: DP12658
Authors: Bige Kahraman; Salil Pachare
Abstract: How does greater public disclosure of arbitrage activity and informed trading affect informational efficiency? To answer this, we exploit rule amendments in U.S. securities markets, which increased the frequency of public disclosure of short positions. Higher public disclosure can potentially improve or deteriorate informational efficiency. We find that with more frequent disclosure, short-sellers’ information is incorporated into prices faster, improving informational efficiency. In support of the mechanism driving this result, we document significant market reactions to short interest announcements, suggesting investor learning, and furthermore, we find increases in short-selling activity and reductions in short-sellers’ holding periods with the rule amendments.
Keywords: short interest; public disclosure; informational efficiency
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased public disclosure of short positions (G38) | improves informational efficiency (G14) |
| improves informational efficiency (G14) | faster incorporation of short-sellers' information into stock prices (G14) |
| increased public disclosure of short positions (G38) | significant market reactions to short interest announcements (G14) |
| increased public disclosure of short positions (G38) | reduction in short-sellers' holding periods (G14) |
| increased public disclosure of short positions (G38) | increase in short-selling activity (G19) |
| greater disclosure (Y50) | enhances the ability of short-sellers to earn returns more reliably (G12) |