Alberto Manconi (Tilburg University)

“Do Short Sellers Care About Corporate Hedging?”

abstract

We study the relationship between corporate hedging and short selling, using a novel data set on short sales of US equities over the period 2002-2009, and hand-collected data on corporate hedging. We document that hedging is associated with lower uncertainty, i.e., lower analyst forecast dispersion and greater breadth of ownership. This should erode the informational advantage of the short sellers vis-à-vis the market, and reduce the expected gains from short selling. Consistent with this argument, we find lower profits from short selling the stocks of hedging firms than non-hedging firms. The short sellers adjust to the effect of corporate hedging on their expected profits, with the result of a lower short selling intensity on the stocks of hedging firms.