Stephen E. Christophe and Jim Hsieh, George Mason University
Wall Street Horizon Abstract
The findings of the study reveal that information percolation during earnings announcements (including data sourced by Wall Street Horizon) leads to increased short selling activity by informed traders. The authors observe that informed short sellers take advantage of the newly disclosed information to profit from downward price movements, indicating their ability to anticipate negative earnings surprises.
Moreover, the research examines the impact of informed short selling on subsequent stock returns. It shows that short selling activity following negative earnings surprises leads to a more pronounced price decline in the days following the announcement. This suggests that informed short sellers contribute to the price discovery process and facilitate the incorporation of new information into stock prices.
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