1. 1 The Information Content of Short Selling before Macroeconomic Announcements Paul Brockman, Leigh University (Grace) Qing Hao, University of Missouri- Columbia

2. 2 Reading Questions Is there a significant relation between short selling and the release of major economic indicators? To what extent do short sellers use exchange traded funds (ETFs) to benefit from information advantages at the macroeconomic level? Are short sellers able to earn abnormal returns from trading on the content of macroeconomic reports? Are some macroeconomic reports more susceptible to short seller trading than others?

3. Research Design A negative and significant relation between pre-release abnormal short selling and post-release stock returns suggests the presence of informed short selling. We examine 10 key economic indicator reports. 3

4. 4 Table 1. Ten Key Economic Indicator Reports Report code IndicatorInstituteTypical release date and time (ET) EMPEmployment Situation Bureau of Labor Statistics, Department of Labor 8:30 a.m. on the first Friday of each month ISM Purchasing Managers’ Index (PMI) Institute for Supply Management (ISM)10:00 a.m. on the first business day of each month M3 Manufacturers' Shipments, Inventories, and Orders Department Commerce’s Census Bureau The advance report on durable goods is released at 8:30 a.m. on about the 18th business day of each month CPI Consumer Price Index (CPI) Bureau of Labor Statistics, Department of Labor 8:30 a.m. on about the 13th of each month GDP Gross Domestic Product (GDP) Bureau of Economic Analysis, Department of Commerce 8:30 a.m. on the third or fourth week of the month HOS Housing starts and building permits Department Commerce’s Census Bureau & Department of Housing and Urban Development 8:30 a.m. on approximately the 15th day of each month CON Consumer Confidence The Conference Board10:00 a.m. on the last Tuesday of each month PPI Producer Price Index (PPI) Bureau of Labor Statistics, Department of Labor 8:30 a.m. around the 11th of each month MIC Consumer Sentiment Index University of Michigan 9:45-10:00 a.m. on the second to last Friday of each month RETRetail SalesThe Census Bureau of the Department of Commerce 8:30 a.m. around the 13th of each month

5. Data The daily short-sale data are obtained for the American Stock Exchange (AMEX), Archipelago, Boston Stock Exchange, Chicago Stock Exchange, National Association of Securities Dealers, National Association of Securities Dealers Automated Quotations (NASDAQ), National Stock Exchange (formerly known as the Cincinnati Stock Exchange), Philadelphia Stock Exchange, and New York Stock Exchange (NYSE). 5

6. Data Pursuant to the SEC’s Regulation SHO adopted in 2004, all the above self- regulatory organizations (SROs) made tick data on short sales publicly available starting 2 January 2005. 6

7. 7 Table 2. Panel A. Descriptive statistics of the sample ETFs and the short selling in these ETFs MeanMedianMaximumMinimumStd. Dev. Market Cap ($ billion)1,42215355,539185,053 SS (thousand of shares)582939,6810.53,742 RELSS20% 51%3%12%

8. 8 Table 2. Panel B. Deviation from market forecast and ETF return (1)(2)(3)(4)(5) Report code Economic indicatorActual Actual- Forecast RET0 Std. Dev. of RET0 Correlation between (2) and (3) EMP Nonfarm Payrolls139,069-15,0690.02%0.76%-0.03* Unemployment Rate4.84%-0.05%0.02%0.76%-0.01 ISMISM Index54.43-0.530.17%0.89%-0.16*** M3Durable Orders0.28%-0.53%-0.17%1.07%0.25*** CPIConsumer price index0.25%-0.01%0.05%0.97%0.00 GDPGross domestic product3.01%-0.07%0.38%0.98%0.00 HOS Building Permits1,906.340.140.31%0.98%-0.25*** Housing Starts1,876.343.410.31%0.98%-0.17*** CONConsumer Confidence103.501.04-0.29%1.06%-0.17*** PPIProducer price index0.30%0.04%0.14%0.89%-0.00 MICMichigan Sentiment88.23-0.350.00%0.82%0.19*** RETRetail Sales0.37%-0.05%-0.00%1.01%-0.05***

9. Regression Results Short sellers are able to earn abnormal returns from trading on the Employment Situation Report (Panel A of Table 3). Short sellers are unable to earn abnormal returns from trading on the other nine macroeconomic reports (Panels A and B of Table 3). 9

10. 10 Table 3. Panel A. Estimation results for the Employment Situation Report and the Purchasing Managers’ Index (PMI) by the Institute for Supply Management (ISM) EMPISM Equation (3)Equation (5)Equation (3)Equation (5) Dependent Variable =ABSSABRELSSABSSABRELSS Intercept4.97***3.56***5.40***3.31*** (4.17)(6.84)(3.37)(7.77) RET0 (%)-0.27***-0.10**-0.96-0.10 (-2.77)(-2.04)(-1.39)(-1.45) RET(-2,-1) (%) -0.55-2.13-12.524.48 (-0.06)(-0.63)(-0.77)(1.29) ABVOL(-2,-1) (%) 0.74***0.99 (3.49)(1.44) Log(mktcap) -0.56***-0.40***-0.81**-0.38*** (-3.11)(-5.99)(-2.51)(-7.00) MOM (%)10.435.02*39.35-0.09 (1.02)(1.47)(1.07)(-0.02) PUT0.12-0.020.900.04 (-0.19)(-0.12)(1.14)(0.20) VOLSTD 0.03*0.03***0.050.03*** (1.92)(4.92)(1.18)(5.02) RETSTD -64.10-60.76**45.67-48.20* (-1.01)(-2.09)(0.40)(-1.70) N3,752 3,652 Adj. R 2 8.20%5.12%4.34%4.81%

11. 11 Table 3. Panel B. Coefficient estimate on RET0 (%) for 10 economic indicators Equation (3)Equation (5)Equation (3)Equation (5) Dependent Variable =ABSSABRELSSABSSABRELSS M30.16-0.01GDP0.220.13** (0.84)(-0.19)(1.54)(2.08) HOS0.080.04CON-0.15-0.07 (0.83)(0.67)(-1.00)(-1.42) CPI0.170.04PPI0.12-0.04 (1.35)(0.64)(0.68)(-0.69) RET0.120.14***MIC-0.30*-0.02 (0.65)(3.42)(-1.85)(-0.46)

12. 12 Conclusion Short sellers can earn abnormal returns while trading on pre-scheduled releases of macroeconomic reports. The Employment Situation Report is arguably the most influential report among the 10 macroeconomic indicators studied herein (Yamarone, 2007). The relative importance of this report suggests why traders might be willing to spend more resources in their attempts to predict its content.