Abstract
We show that Australian short sellers do not front-run insider sales. Results are robust to conditional trading classified by book-to-market, intangible ratios, industry and multiple factor analysis. The combination of insider sales and short selling provides a contrarian signal that dampens prior overpricing, but is not associated with subsequent abnormal returns. We contend that the business environment in Australia, together with the daily reporting of short sales, plays a significant role in restraining short selling profitability. Our results contradict front-running by short sellers in the U.S., where the reporting and litigation environment induces the leakage of pre-traded negative information by corporate insiders. Overall, we highlight how information flow direction and profitability can be affected by different country legal and business cultures.
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