We would like to thank Robert Battalio (the editor), two anonymous referees, and seminar participants at the University of Missouri and the Southwestern Finance Association 2009 Conference for helpful comments.
Are Short Sellers Informed? Evidence from REITs
Article first published online: 4 JAN 2012
© 2012, The Eastern Finance Association
Volume 47, Issue 1, pages 145–170, February 2012
How to Cite
French, D. W., Lynch, A. A. and Yan, X. (2012), Are Short Sellers Informed? Evidence from REITs. Financial Review, 47: 145–170. doi: 10.1111/j.1540-6288.2011.00324.x
- Issue published online: 4 JAN 2012
- Article first published online: 4 JAN 2012
- short selling;
- informed trading;
This paper uses intraday short sale data to examine whether short sellers of Real Estate Investment Trusts (REITs) are informed. We find strong evidence that short selling predicts future returns of REITs. Heavily shorted REITs significantly underperform lightly shorted REITs by approximately 1% over the following 20 trading days. This predictive relation holds for both small and large trades, but is stronger for large short trades. We also document a positive relation between shorting activity and volatility. Our results are consistent with the view that short sellers of REITs are informed and contribute to market efficiency by impounding information into prices.