Abstract
Using short-selling pilot programs in China as quasi-natural experiments, we investigate how short-selling impacts mutual fund herding. We find that mutual funds herd more on firms eligible for short-selling than those not. The effect is larger for firms with fewer media coverage, higher financial reporting opacity, or lower audit quality. Channel tests show that short-selling decreases information asymmetry proxied by informed trading and stock illiquidity. Additionally, short-selling strengthens the price impact of herding without causing reversals. Our findings fit the correlated signal theory: mutual funds receive more similar information on firms eligible for short-selling and, thus, herd more on them.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
