انتقال اطلاعات و آموزش در بازارهای مالی: شواهدی از فروش استقراضی در کنار فروش داخلی

We document significant increases in short positions on days when company insiders sell their firms’ shares. Short selling increases before insider sales are publicly reported and often before insiders finish selling. Furthermore, the magnitude of short selling activity is consistent with short sellers’ knowledge of the insider’s rank (e.g., CEO, CFO, or a lower-ranked manager) and with knowledge of the unobservable size of the insider’s trading position. We show that short sellers’ superior timing is consistent with (i) monitoring of order flow and (ii) obtaining price-relevant information from brokerages that execute insider sales. Some of our results extend to insider purchases.

Research often finds that short sellers successfully trade on short-lived price-relevant information. Nevertheless, the exact nature of short sellers’ informedness is not fully understood. While some argue that short sellers analyze public information, others suggest that short sellers trade on private information. Yet another group of researchers finds no evidence of superior information processing skills and attributes short seller behavior to speculative motives. In this study, we conduct a comprehensive examination of short seller informedness regarding recently completed (or ongoing) insider sales. Our evidence is consistent with the notion that some short sellers become informed about insider sales ahead of an average investor. Specifically, short selling by non-market makers increases by 26% on insider sale days. An average insider sale is reported to the public two days after the sale date and is accompanied by an abnormal announcement return of −1.35%. Thus, a short position opened before the public announcement of an insider sale and closed upon the market reaction to the announcement may represent a profit opportunity. We show that some of short sellers’ informedness about insider sales may be credited to their ability to analyze visible order flow. Because insider sales are often large, they create significant disturbances in the supply of shares. Our results suggest that such disturbances are detected by sophisticated tape monitors, who subsequently sell short. Yet the data also indicate that a much larger portion of abnormal short selling is attributable to information that is not observable from order flow. For instance, short sellers’ activities are consistent with knowledge of such unobservables as the insider’s status (e.g., CEO, CFO, or lower level manager) and the size of the insider’s trading interest. Specifically, short selling is higher concurrent with stock sales by higher-ranked executives and when an insider’s trading interest is large. Both insider status and trading interest are not immediately observable by short sellers. These details are usually publicly reported two business days after the insider transaction occurs. A unique feature of our data is that, for each insider sale, we observe the identity of the broker who executed this sale. This is made possible by merging two insider trading datasets – Form 4 and Form 144. Applied to the combined dataset, our bootstrapping procedure produces results consistent with the view that dissemination of price-relevant information about ongoing insider sales is often associated with the brokerages that execute these sales. Our study adds to the literature on short sellers’ informedness. Some studies, e.g., Wu and Zhang, 2011, Blau and Pinegar, 2012 and Engelberg et al., 2012, suggest that short sellers analyze publicly available information (e.g., corporate news and observable anomalies) better and faster than other investors. Others, e.g., Christophe et al., 2004, Christophe et al., 2010 and Massoud et al., 2011, propose that short selling patterns are often consistent with access to non-public information prior to the event announcement. Another growing body of research finds no support for the notion that short sellers are skillful short-term traders. Blau et al. (2012) discover no evidence of short selling driven by non-public information prior to merger announcements. Neither do they find any evidence of short sellers’ superior public information processing skills. Along the same lines, studies find that short selling adjacent to seasoned equity offerings (Henry and Koski, 2010) and analyst recommendations (Blau and Wade, 2012) is more consistent with manipulative trading or speculation than with superior informedness. In this light, the results of Blau and Wade (2012) are particularly notable. Blau and Wade revisit conclusions of Christophe et al. (2010), who had found that abnormally high short selling prior to analyst downgrades is consistent with superior informedness. Blau and Wade discover that abnormal short selling does not only precede downgrades, but also upgrades. Had short sellers been truly informed, they would have opened fewer short positions prior to the upgrades. Blau and Wade therefore conclude that short selling around analyst recommendation changes is more consistent with speculation than with informed trading. In this paper, we show that short sellers react to insider sales and purchases in a manner consistent with informed trading. Specifically, short selling increases on insider sale days and declines on insider purchase days. Thus, our results revalidate the notion of short sellers’ informedness about certain corporate events. Our contribution to the existing literature is threefold: (i) we uncover conclusive evidence of brokerage involvement in information dissemination about insider transactions (we are unaware of any previous work that establishes such results); (ii) our results extend to insider purchases, thereby satisfying Blau and Wade’s (2012) criticism that short selling activity around corporate events may be speculative rather than informed; and (iii) we identify a source of short seller informedness that has been generally overlooked by prior studies – learning by observing public order flow. The remainder of the paper is organized as follows. Section 2 describes the existing literature on insider sales and on information dissemination in the financial industry. Section 3 describes the data and the sample. Section 4 contains the empirical analysis of short selling around insider sales and documents the brokerage effect. Section 5 relates abnormal short selling to the firm and insider characteristics and offers a discussion of profitability of short positions. Section 6 concludes.

Our unique dataset identifies, for each insider sale, the brokerage firm that executed this sale and allows us to closely examine the issue of piggybacking in the brokerage industry. We are the first study to provide conclusive evidence consistent with the notion that information about recently completed and ongoing insider sales is often disseminated by executing brokerages to their third party clients. These clients subsequently open short positions that have significant profit potential. Our findings extend to insider purchases; we find abnormally low short selling on insider purchase days. These results suggest that short selling subsequent to insider transactions is informed rather than speculative. Lastly, we identify a source of short seller informedness that has been generally overlooked by prior studies – learning by interpreting signals embedded in public order flow.