Short-Sellers May Not Make Money When Markets Know Their Trades
- Academic study shows Dutch data leak drove up shorted stocks
- Nasdaq, NYSE have demanded more disclosure of short selling
When Dutch regulators accidentally revealed who was betting against local stocks last year, they didn’t just just expose George Soros and other short sellers’ secret trades. The stocks stopped underperforming, providing a case study for U.S. exchanges that argue shorts shouldn’t be allowed to operate in secret.
In the run-up to the leak by Dutch financial regulators in January 2017, the stocks being targeted by short sellers were lagging peers by an average of 4 basis points per day, according to a study by Rients Galema and Dirk Gerritsen of the Utrecht University School of Economics. But once news reports about the disclosure started circulating, the stocks showed an average positive return of more than 50 basis points, their research showed.