Revealing Shorts: An Examination of Large Short Position Disclosures, Working paper

Between 2008 and 2012, European Union countries enacted rules requiring the disclosure of large short positions. This is a novel approach to short-sale regulation, and we analyze the effect of the regime change and the effect of the disclosures themselves. We find a reduction in short interest and a reduction in bid-ask spreads as the disclosure regime is implemented over five distinct event dates in a sample of 12 countries. We find no negative abnormal returns immediately after disclosure, but over longer intervals we find significantly negative returns. Similarly, we find no increase in short interest in the days immediately after a particular disclosure, although the total level of short interest falls when the disclosure regime is introduced. Taken together, these results suggest disclosures are not being used to coordinate manipulative attacks, but instead large short sellers are simply well-informed. Finally, we find that a disclosure today makes it more likely that there will be another disclosure within a month in the same stock by a different short seller. This follow-on shorting is more likely when the initial discloser is large, and when follow-on disclosers are geographically close to the initial discloser. Similar regulations are currently under consideration by the US Securities an