Journal article
Out of Sync: Dispersed Short Selling and the Correction of Mispricing
A Gargano, J Sotes-Paladino, P Verwijmeren
Journal of Financial and Quantitative Analysis | Published : 2023
Abstract
How synchronized are short sellers? We examine a unique data set on the distribution of profits across a stock’s short sellers and find evidence of substantial dispersion in the initiation of their positions. Consistent with this dispersion reflecting “synchronization risk,” that is, uncertainty among short sellers about when others will short sell, more dispersed short selling signals i) greater stock overpricing and ii) longer delays in overpricing correction. These effects are prevalent even among stocks facing low short-selling costs or other explicit constraints. Overall, our findings provide novel cross-sectional evidence of synchronization problems among short sellers and their pricin..
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Awarded by ANID Fondecyt Initiation Grant
Funding Acknowledgements
We thank an anonymous referee, Henk Berkman, Dan diBartolomeo (discussant), Huu Nhan Duong (discussant), Yufeng Han (discussant), Jarrad Harford (the editor), CaioMachado (discussant), Giorgo Sertsios, Esad Smajlbegovic, Kumar Venkataraman, Ingrid Werner, Antti Yang, Jianfeng Yu, Rafael Zambrana, Zhuo Zhong, and seminar participants at Point72 Asset Management, Universidad Adolfo Ibanez, the 2021 Chinese International Finance Conference, and the 2019 Behavioural Finance and Capital Markets Conference for comments and suggestions. We gratefully acknowledge the support provided by the ANID Fondecyt Initiation Grant 11190917. All errors are our own.