Essays on Short Selling

This dissertation examines the role of short selling and short sellers in the process by which information is gathered and incorporated into stock prices. The first essay examines how the ability to short sell impacts adverse selection in financial markets through its impact on investors’ incentives to gather costly information. The second essay examines how systematic changes across the business cycle affect what types of information – macro economic or firm specific – short sellers allocate attention to during recessions and expansions.