Short-Selling Prior to Earnings Announcements


  • Stephen E. Christophe,

  • Michael G. Ferri,

  • James J. Angel

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    • Christophe and Ferri are from George Mason University, and Angel is from Georgetown University. We thank the Nasdaq Stock Market for providing the data. Christophe gratefully acknowledges financial support from a First Virginia Bank Faculty Fellowship and from George Mason University. Angel and Ferri gratefully acknowledge financial support from the Nasdaq Educational Foundation and especially thank Laura Levine of the NEF. We also appreciate the comments and suggestions of an anonymous referee, Michael Edleson, Frank Hatheway, Timothy McCormick, Jeffrey W. Smith, James Gentle, Michel Robe, and seminar participants at Nasdaq's Office of Economic Research, American University, and George Mason University. Finally, we thank Dharmesh Trivedi and Adolfo Laurenti for valuable research assistance. The views expressed in this paper, however, are those of the authors and do not necessarily reflect the views of the Nasdaq Stock Market, Inc., the Nasdaq Educational Foundation, or anyone else.


This paper examines short-sales transactions in the five days prior to earnings announcements of 913 Nasdaq-listed firms. The tests provide evidence of informed trading in pre-announcement short-selling because they reveal that abnormal short-selling is significantly linked to post-announcement stock returns. Also, the tests indicate that short-sellers typically are more active in stocks with low book-to-market valuations or low SUEs. The levels of pre-announcement short-selling, however, mostly appear to reflect firm-specific information rather than these fundamental financial characteristics. We believe that these results should encourage financial market regulators to consider providing more extensive and timely disclosures of short-selling to investors.