Short Interest and the Stock Market Relation with News Sentiment from Traditional and Social Media Sources

We examine how the stock market relation to news sentiment – from traditional and social media (Twitter) sources - interacts with stock short selling. Our sample includes the S&P500 constituents for the period January 2016 to December 2020. We find evidence that returns are positively related to both news types, and the relationship is stronger for firms that are small and/or highly shorted. This is consistent with short sellers targeting firms that are most responsive to (negative) news releases and so more likely to compensate for the additional costs encountered in shorting stocks