Go Down Fighting: Short Sellers vs. Firms
Owen A. Lamont, Yale School of Management

I study battles between short sellers and firms. Firms use a variety of methods to impede short selling, including legal threats, investigations, lawsuits, and various technical actions intended to create a short squeeze. These actions create short sale constraints. Consistent with the hypothesis that short sale constraints allow stocks to be overpriced, firms taking anti-shorting actions have in the subsequent year very low abnormal returns of about -2 percent per month.

This paper identifies a highly persistent indicator of negative investment performance: the vocal resistance of management to short sellers. Any member who is engaged in any stock selection model will want to be aware of these results.