Seminar (Dept. of Finance)

Theme：Does mandatory short selling disclosure lead to investor herding behavior?

Speaker：Frank Zhang (Professor of Accounting, Yale School of Management)

Time：2022-05-13 09:00

Address：Online Meeting

Language：English

ABSTRACT: 

We investigate two competing hypotheses for why clustering of trades occurs around short sale disclosure in the UK: herding- and information-based trading. First, we use a matched sample of firms with similar short interest to compare firms with and without short selling disclosure and find that firm-level short interest exhibits a much smaller reversal for disclosure stocks than for matched non-disclosure stocks. A smaller reversal for disclosure stocks is consistent with short position disclosure inducing investor herding behavior and thus making short interest more persistent. Second, we explore the role of corporate news on the premise that information-based trading is related to news about firm fundamentals. We find that short sale disclosure occurs with similar frequency across the pre-earnings announcement, post-earnings announcement, and no-information windows, suggesting that information shocks related to firm fundamentals are not a major factor of short sale disclosure clustering. More importantly, the clustering of short sale disclosure does not vary significantly between good and bad earnings news. Overall, the evidence is most consistent with investor herding behavior for the clustering of short sale disclosure.

SHORT BIOGRAPHY:

Frank Zhang is a full professor at the School of Management, Yale University. Professor Zhang's research focuses on empirical capital markets research, including stock anomalies, fundamental analysis, investor and analyst behavior, and firm financial reporting strategies. He is interested in both rational and behavioral approaches in studying stock anomalies and cross-sectional variations in stock returns. He has published numerous papers in top-tier accounting and finance journals, including Journal of Accounting Research, The Accounting Review, Journal of Accounting & Economics, Review of Accounting Studies, Journal of Finance, and Review of Financial Studies.