Berkman, H., McKenzie, M. and Verwijmeren, P. (2017). Hole in the wall: Informed short selling ahead of private placements Review of Finance, 21(3):1047--1091.
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Affiliated author
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Publication year2017
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JournalReview of Finance
Companies planning a private placement typically gauge the interest of potential buyers before the offering is publicly announced. Regulators are concerned with this practice, called wall-crossing, as it might invite insider trading, especially when the potential investors are hedge funds. We examine privately placed common stock and convertible offerings and find evidence of widespread pre-announcement short selling. We show that pre-announcement short sellers are able to predict announcement day returns. The effects are especially strong when hedge funds are involved and when the number of buyers is high.