THESIS
2019
xi, 54 pages : illustrations ; 30 cm
Abstract
This paper investigates the informational content of publicly available short flow. Even
though daily short flow data is published in real time during 2010-2018, simple sort based
on short volume ratio indicates it remains a significant predictor of negative future stock
returns. Both the short term and long term short volume ratios can predict future returns
and the predictability decays slowly up to one year. The results are also confirmed by
Fama-MacBeth regressions. Most importantly, the abnormal short volume ratio can also
predict future short term and long term returns, which indicates short sellers are trading
based on short term private information. By investigating the short volume ratio around earnings announcement, we find that short volume ratio anticipates earnings n...[
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This paper investigates the informational content of publicly available short flow. Even
though daily short flow data is published in real time during 2010-2018, simple sort based
on short volume ratio indicates it remains a significant predictor of negative future stock
returns. Both the short term and long term short volume ratios can predict future returns
and the predictability decays slowly up to one year. The results are also confirmed by
Fama-MacBeth regressions. Most importantly, the abnormal short volume ratio can also
predict future short term and long term returns, which indicates short sellers are trading
based on short term private information. By investigating the short volume ratio around earnings announcement, we find that short volume ratio anticipates earnings news, return
predictability concentrating on one day before the earnings announcement day and
can predict cash flow news. Lastly, we show the abnormal short volume ratio’s return
predictability also concentrates in less limits to arbitrage subsamples such as stocks being
large, liquid, high institutional ownership and low idiosyncratic volatility. All these point
to the fact that at least, short sellers are trading based on short term information.
Key Words— Short Flow, FINRA, Return Predictability, Market Efficiency
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