Crisis and non-crisis short selling and bank enforcement actions.
Boni, Leslie; Leach, J. Chris; White, Reilly S. Crisis and non-crisis short selling and bank enforcement actions. Journal of Banking & Finance. Nov2021, Vol. 132, pN.PAG-N.PAG.ÌýÌýÌýÌý
Employing standard informed trading intuition, we develop testable hypotheses regarding short selling before and after bank enforcement action (EA) initiations. For U.S.-listed bank firm data for 2007 to 2012, we find strong support for differentiated short seller activity and skill in crisis versus non-crisis periods. In financial crises, short sellers predominantly position prior to EAs. The EA initiations then act as information-homogenizing and profit-taking events reducing incentives to remain positioned. In contrast, EAs in non-crisis periods appear to serve as wake-up calls that attract additional short selling. Our findings offer potentially important insights for regulators considering short sellers' reactions to EA announcements in general, during financial crises, and when not experiencing a broad financial crisis.ÌýÌýÌýÌý
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