This paper investigates the relationship between short-selling activity and one-month ahead stock returns, with a focus on the role of distressed firms in the Korean stock market. In contrast to the U.S. market, we find that short-selling activity is concentrated on firms in the investment-grade group. Consistent with prior research, we find predictability of short-selling trading in stock returns. Moreover, we find that short-selling activity has significant role in predicting stock returns for investment-grade but not for speculative-grade group in the Korean market.
Wang thanks anonymous referee for valuable comments. This paper is supported by the 2021 Academic Research Support Program of Korea Finance Association (sponsored by Korea Investor Service, an affiliate of Moody's investors serivce). Wang thanks the financial supported by Ajou University . All errors are our own.
