Abstract
We examine the role of strategic communication in public short selling campaigns by hedge funds. Such campaigns are associated with abnormal returns for targets of approximately -7% as well as changes in the behavior of stakeholders (e.g., other short sellers). The effects are driven by campaigns that feature specific allegations rather than general claims of overvaluation. Campaigns are primarily undertaken by activist hedge funds, particularly those that have more experience or employ hostile tactics. Overall, our findings are consistent with models of strategic communication in which investor reputation and the credibility of allegations facilitates the flow of negative information into prices.
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