Securities and Exchange Commission Comment Letter Disclosures and Short Sellers’ Front Running
研究发现卖空者在SEC意见函披露前增加空头头寸，且增加幅度与意见函严重程度正相关，但市场对严重意见函的反应滞后，表明抢先交易并非最优策略。
ABSTRACT Prior studies show that comment letters released by the Securities and Exchange Commission provide information on firms’ financial reporting quality and can have adverse value implications about the firms. We examine whether short sellers front-run comment letter disclosures and take short positions based on the economic implications of the letters. We find that short interest increases before comment letter disclosures and that the increase is positively associated with the severity of the letters. We also find evidence suggesting that short sellers obtain private information through social connections with corporate insiders. Finally, we document a negative but delayed market reaction to the disclosure of severe comment letters. These results suggest that front running the comment letter disclosure is not the optimal trading strategy for short sellers. Short sellers can gain similar profits, and bear less risk, if they put off increasing their short positions until after the disclosure. JEL Classifications: G32; M40.