WHOSE SHORT SALES ARE INFORMED? INSTITUTIONS VS. INDIVIDUALS

This paper examines the information content of short sales by institutions and individuals in the Taiwan stock market. Different from NYSE and other main stock markets with rare shorting by individuals, individuals like to short stocks on the Taiwan Stock Exchange. This provides an opportunity to investigate whether institutions or individuals are informed short sellers. The empirical results indicate that institutions and individuals take more heavy short positions in stocks with lower fundamental values. Institutional short selling is positively associated with institutional holdings, but individual short selling is negatively related to institutional holdings. Moreover, heavy short selling results in negative abnormal return significantly, and there is no difference of abnormal return between institutional and individual short selling. Finally, the finding is still robust during the financial tsunami. Thus, in the Taiwan stock market, institutional and individual short sellers are both informed.