Short sellers and the failures of financial intermediaries

Dien Giau Bui, Chih-Yung Lin*, V. Chris

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

This study examines whether short sellers can predict the failures of financial intermediaries. The sample consists of 2,457 financial intermediaries from 1990 to 2016. First, we show that short interest is positively correlated to the failures of financial intermediaries. Second, we construct two measures of abnormal short interest before a failure and find robust evidence that this interest is positively correlated to the failures. Our empirical results confirm that short sellers do predict the failures in financial intermediaries. Therefore, the trading information from short sellers could be a vital resource for the government to prevent the occurrence of financial instability.

Original languageEnglish
Article number108575
JournalEconomics Letters
Volume183
DOIs
StatePublished - 1 Oct 2019

Keywords

  • Bank failures
  • Financial instability
  • Financial intermediaries
  • Short interest
  • Short sellers

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