Short sale disclosure rules: an information story

I examine EU regulations requiring timely public disclosures of large short positions. I find that these regulations, despite increasing costs to short selling, improve price efficiency during the earnings announcement period, as evidenced by increased pre-announcement information acquisition and decreased bid-ask spreads, return volatility, and post-earnings announcement drift. The effect is strongest in firms announcing bad earnings news and operating in weak information environments. This paper offers insights to the ongoing debate on large short position disclosure regulation, providing both contrasting and complementing evidence to the extant literature on the subject.