Interest in the Short Interest: The Rise of Private Sector Data

The extent to which a stock is sold short (the “short interest”) is currently required to be disclosed twice per month, but regulators have consistently expressed a desire to increase this frequency. Meanwhile, short interest and lending data from private, third-party vendors has arisen to meet investor demand for short selling information on a daily basis. We find that this daily private-sector data is a strong predictor of the bimonthly regulatory short interest disclosure and investors appear to react to this daily data. Moreover, we find evidence that the daily private-sector data partially preempts investor reaction to the regulatory short interest data, but the magnitude of the effect is small. In fact, investors appear to under-react to the information content of the daily private-sector data. Although access to this data is relatively expensive, we find no evidence that retail investors are harmed in their trades around daily changes in the private-sector short interest. Overall, our findings suggest that increasing investor awareness of, or access to, private-sector short interest data may be a less-costly alternative to mandating increased frequency of regulatory short interest. We contribute to short selling literature by studying the interplay of private-sector and regulatory solutions in enhancing short selling transparency