Abstract
I study the effect of short selling on product market performance using exogenous variations in short selling threats generated by the pilot program of Regulation SHO. I find that the decrease in short selling costs of firms in the pilot program has a positive and causal effect on firms' product market shares. The positive effect is stronger if firms face ex ante obstacle in effectively obtaining product related consumer preference information. The result is consistent with the product information transmission effect of short selling, i.e., short sellers transmit information about customers' preferences through their trading decisions. I find some weak evidence consistent with the disciplining effect of short selling.
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