The Information Content of Short Selling before Macroeconomic Announcements Paul Brockman, Leigh University (Grace) Qing Hao, University of Missouri-Columbia
Reading Questions • Is there a significant relation between short selling and the release of major economic indicators? • To what extent do short sellers use exchange traded funds (ETFs) to benefit from information advantages at the macroeconomic level? • Are short sellers able to earn abnormal returns from trading on the content of macroeconomic reports? • Are some macroeconomic reports more susceptible to short seller trading than others?
Research Design A negative and significant relation between pre-release abnormal short selling and post-release stock returns suggests the presence of informed short selling. We examine 10 key economic indicator reports.
Data The daily short-sale data are obtained for the American Stock Exchange (AMEX), Archipelago, Boston Stock Exchange, Chicago Stock Exchange, National Association of Securities Dealers, National Association of Securities Dealers Automated Quotations (NASDAQ), National Stock Exchange (formerly known as the Cincinnati Stock Exchange), Philadelphia Stock Exchange, and New York Stock Exchange (NYSE).
Data Pursuant to the SEC’s Regulation SHO adopted in 2004, all the above self-regulatory organizations (SROs) made tick data on short sales publicly available starting 2 January 2005.
Table 2. Panel A. Descriptive statistics of the sample ETFs and the short selling in these ETFs
Regression Results Short sellers are able to earn abnormal returns from trading on the Employment Situation Report (Panel A of Table 3). Short sellers are unable to earn abnormal returns from trading on the other nine macroeconomic reports (Panels A and B of Table 3).
Table 3. Panel A. Estimation results for the Employment Situation Report and the Purchasing Managers’ Index (PMI) by the Institute for Supply Management (ISM)
Table 3. Panel B. Coefficient estimate on RET0 (%) for 10 economic indicators
Conclusion • Short sellers can earn abnormal returns while trading on pre-scheduled releases of macroeconomic reports. • The Employment Situation Report is arguably the most influential report among the 10 macroeconomic indicators studied herein (Yamarone, 2007). • The relative importance of this report suggests why traders might be willing to spend more resources in their attempts to predict its content.