Short Selling, Informed Trading, and the Role of Social Media

Abstract

This paper investigates the relationship between short selling and Twitter activity prior to merger and acquisition announcements. Data are for U.S.-listed banking firms from 2009 to 2013. In the week prior to the M&A announcement, we find abnormal daily short selling, particularly for cash deals. Twitter activity, rarely present in the week prior to the M&A announcement, spikes at the time the deal is announced. Social media tips do not appear to provide a channel for information transfer to short sellers prior to M&A announcements nor do sellers use social media to apply market pressure for stocks they have shorted.