Short Interest, Returns, and Fundamentals

51 Pages Posted: 13 Feb 2013 Last revised: 18 Sep 2013

See all articles by Ferhat Akbas

Ferhat Akbas

University of Illinois at Chicago - College of Business Administration

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business

Bilal Erturk

Texas A&M University - Department of Finance

Sorin M. Sorescu

Texas A&M University; Adam C. Sinn `00 Department of Finance

Date Written: August 31, 2013

Abstract

We show that short interest predicts future bad news, negative earnings surprises, and downward revisions in analyst earnings forecasts. Moreover, short interest is a better predictor of changes in firm fundamentals for stocks that are harder to short and short sellers appear to have information about these events several months before they become public. Most importantly, the well-known cross-sectional relation between short interest and future stock returns vanishes after controlling for short sellers’ information about future fundamental news. Thus, short sellers contribute in a significant manner to price discovery about firm fundamentals.

Keywords: Short interest, fundamental information, cross-section of stock returns

JEL Classification: G12, G14

Suggested Citation

Akbas, Ferhat and Boehmer, Ekkehart and Erturk, Bilal and Sorescu, Sorin M., Short Interest, Returns, and Fundamentals (August 31, 2013). Available at SSRN: https://ssrn.com/abstract=2216919 or http://dx.doi.org/10.2139/ssrn.2216919

Ferhat Akbas

University of Illinois at Chicago - College of Business Administration ( email )

601 South Morgan Street
11th Floor
Chicago, IL 60607
United States

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business ( email )

Singapore

Bilal Erturk

Texas A&M University - Department of Finance ( email )

360 Wehner
College Station, TX 77843-4218
United States

Sorin M. Sorescu (Contact Author)

Texas A&M University ( email )

Mays Business School
College Station, TX 77843
United States
979-458-0380 (Phone)

HOME PAGE: http://wehner.tamu.edu/finc.www/ssorescu/

Adam C. Sinn `00 Department of Finance ( email )

4218 TAMU
College Station, TX Texas 77843-4218
United States
979-458-0380 (Phone)

HOME PAGE: http://mays.tamu.edu/directory/ssorescu/

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