The Information Content of Short Interest: A Natural Experiment
Preprint
- 1 January 2002
- preprint
- Published by Elsevier in SSRN Electronic Journal
Abstract
An increase in the cost of short selling should increase the bearish information content of short interest announcements by driving relatively uninformed short sellers out of the market (Diamond and Verrecchia, 1987). We extend the Diamond and Verrecchia model to include short selling against the box and we test the extended model using a natural experiment based around the Tax Payer Relief Act of 1997 (TRA97). TRA97 made short selling more costly for those shorting against the box. Consistent with the implications of our extended model, this increase in short selling costs strengthened the negative relationship between short interest and subsequent stock performance post-TRA97.Keywords
This publication has 24 references indexed in Scilit:
- Why Do Option Introductions Depress Stock Prices? A Study of Diminishing Short Sale ConstraintsJournal of Financial and Quantitative Analysis, 2001
- New York Stock Exchange IndexesPublished by Taylor & Francis ,2000
- Tick Size, Spreads, and Liquidity: An Analysis of Nasdaq Securities Trading near Ten DollarsJournal of Financial Intermediation, 2000
- Eighths, sixteenths, and market depth: changes in tick size and liquidity provision on the NYSEJournal of Financial Economics, 2000
- Short Selling on the New York Stock Exchange and the Effects of the Uptick RuleJournal of Financial Intermediation, 1999
- Short Interests, Fundamental Analysis, and Stock ReturnsSSRN Electronic Journal, 1999
- Estimation of the Bid–Ask Spread and Its Components: A New ApproachThe Review of Financial Studies, 1991
- A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for HeteroskedasticityEconometrica, 1980
- Short Selling and the Capital Gains TaxCFA Magazine, 1978
- A Stock Price Predictive Model Based on Changes in Ratios of Short Interest to Trading VolumeJournal of Financial and Quantitative Analysis, 1976