Out of sync: Disagreement among short sellers and the correction of mispricing

Patrick Verwijmeren, Antonio Gargano, Juan Sotes-Paladino

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

How synchronized are short sellers? We examine a unique dataset 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,” i.e., uncertainty among short sellers about when others will short sell (Abreu and Brunnermeier (2002, 2003)), 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 pricing implications.
Original languageEnglish
JournalJournal of Financial and Quantitative Analysis
DOIs
Publication statusPublished - 2022

Bibliographical note

Publisher Copyright:
© 2022 Cambridge University Press. All rights reserved.

Fingerprint

Dive into the research topics of 'Out of sync: Disagreement among short sellers and the correction of mispricing'. Together they form a unique fingerprint.

Cite this