Supplier Short Selling and Customer News
نویسندگان
چکیده
This paper examines whether short sellers exploit information in economically linked firms to undertake profitable trades. Using newly available information on firm-level customer-suppliercompetitor relationships and Reg SHO daily short sales data, we find that the short selling of supplier stock increases with negative post-news customer returns, and that the relation becomes more pronounced in supplier information asymmetry. The results show no relationship between short selling of the upstream supplier and downstream customer news in 3-party economic links, but suggest increased short selling of the supplier’s closest rival based on unfavorable customer news even if the rival is not the customer’s supplier. Finally, short sellers do not trade supplier stock prior to customer news announcements, suggesting evidence of trades based on public information. Overall, these results indicate an information intermediary role of short sellers in economically linked firms.
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