Missed this paper until now, but it’s an interesting look at how you can begin to parse out informed short-sellers in public stocks via insider-selling data:
We examine the return predictability of short selling activities for NYSE/AMEX stocks. We use a measure of short interest that is more likely to be free from the “supply-side†constraints in shorting the stock and therefore a reasonable measure of the “shorting demandâ€. We further project this measure on insider trades to compute the “informationally motivated shorting demand†to analyze the return predictability of short-selling activities. We document economically large profits to information based short-selling activities both when short-sellers increase their short position and when they cover them. An extreme portfolio that sells “informed high short interest†stocks and buys “informed low short interest stocks†earn economically large four-factor model-adjusted returns of 0.82% to 1.22% per month. These results are robust to various models for risk benchmarking and across large and small stocks. Our results show that the short-selling activities are considerably informative about future stock returns.Purnanandam, Amiyatosh K. and Seyhun, Hasan Nejat, “Shorts and Insiders” (July 30, 2007).
Available at SSRN: http://ssrn.com/abstract=1004155
[SSRN via CXOAG]
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