Why Do Short Sellers Like Qualitative News?

Abstract

Short sellers trade more on days with qualitative news-i.e. news containing fewer numbers. We show that this behavior is not informationally motivated but can be explained by short sellers exploiting higher liquidity on such days. We document that liquidity and noise trading increase in the presence of qualitative news thus enabling short sellers to better disguise their informed trades. Natural experiments support our findings. For example, qualitative news has a bigger effect on short sellers' trading after a decrease in liquidity following a stock's deletion from S&P 500 and a lower effect when investor attention is distracted by the Olympic Games.

Tone variation in financial news: A comparison of companies, journalists and financial analysts

“…Previous studies of tone in financial news have not always distinguished between different news producers (e.g. Griffin et al, 2011;Huynh and Smith, 2017;Von Beschwitz et al, 2017), which may lead to inconclusive results, as financial news originating from different sources can be quite distinct in tone. This also means that the relationship between the content and tone of earnings press releases and financial market reactions found in previous research (e.g.…”

“…Furthermore, research in accounting has studied news produced by different actors, but has not compared them (Kothari et al, 2009) or even distinguished between them (e.g. Huynh and Smith, 2017;Von Beschwitz et al, 2017). Thus, insights into the outcomes of embeddedness do not provide a holistic picture of the news produced by different actors about the same news event.…”

Asymmetric news responses of high‐frequency and non‐high‐frequency traders

“…I use the occurrence of numbers in the news headline as a proxy for the hardness of its information content, based on the rationale that it is easier for HFTs to process quantitative rather than pure qualitative linguistic information. This approach is similar to the measure of information intangibility applied by Von Beschwitz, Chuprinin, and Massa (). They argue that tangible or “quantitative news is easier to interpret in terms of market expectations, intangible news admits more ambiguous interpretation” (Von Beschwitz et al., , p. 646).…”

“…This approach is similar to the measure of information intangibility applied by Von Beschwitz, Chuprinin, and Massa (). They argue that tangible or “quantitative news is easier to interpret in terms of market expectations, intangible news admits more ambiguous interpretation” (Von Beschwitz et al., , p. 646). For the latter, nHFTs might be more capable to evaluate and trade on intangible, softer news (cf.…”

Signaling probabilities in ambiguity: who reacts to vague news?

“…Neo-additive capacities (Chateauneuf et al 2007) explicitly weigh the probabilistic and the nonprobabilistic components of the decision functional. As long as the worst and the 1 Qualitative corporate news (lacking numbers and hard evidence) stimulates trading activity of short sellers (von Beschwitz et al, 2017) and drives stock prices even if it bears little factual information (von Beschwitz et al, 2015;Boudoukh et al, 2013). Service quality signals of various precision and reliability, available through online reviews and ranking systems, influence consumer choices (Vermeulen and Seegers, 2009).…”