Public Short Campaigns: Information or Manipulation?

• In Event: Intersections of accounting and finance

Abstract

Using a novel dataset of public short campaigns collected by Activist Insights (AI) and a large sample of short campaigns published on Seeking Alpha (SA), this paper examines the strategic short-selling pattern around campaign publication and finds ex-ante indications of campaigns with manipulative intentions. Specifically, multiple campaigns published on SA on a target firm on the same day (clustered campaigns) does not predict worse performance in the long run than single campaigns. Instead, they generate a greater immediate negative market reaction followed by a greater return reversal. In addition, clustered campaigns are associated with a significantly higher abnormal short-sale volume (per report) right before the campaign publication and a faster speed that short interest decreases afterwards, which is a strategic pattern suggestive of manipulative intentions. Moreover, the relation between clustered campaigns and the strategic pattern is more pronounced when clustering is more likely to be intentionally coordinated than triggered by external-information events. Overall, the evidence suggests that investors overreact to clustered campaigns, and the behavioral bias is taken advantage of by the short side, who builds positions more aggressively before and cluster campaigns together to make a greater profit.

Author

• Danqi Hu, Northwestern University