↑ comment by BenMillwood ·
2020-10-23T16:04:24.347Z · EA(p) · GW(p)
I don't buy your counterargument exactly. The market is broadly efficient with respect to public information. If you have private information (e.g. that you plan to mount a lobbying campaign in the near future; or private information about your own effectiveness at lobbying) then you have a material advantage, so I think it's possible to make money this way. (Trading based on private information is sometimes illegal, but sometimes not, depending on what the information is and why you have it, and which jurisdiction you're in. Trading based on a belief that a particular industry is stronger / weaker than the market perceives it to be is surely fine; that's basically what active investors do, right?)
(Some people believe the market is efficient even with respect to private information. I don't understand those people.)
However, I have my own counterargument, which is that the "conflict of interest" claim seems just kind of confused in the first place. If you hear someone criticizing a company, and you know that they have shorted the company, should that make you believe the criticism more or less? Taking the short position as some kind of fixed background information, it clearly skews incentives. But the short position isn't just a fixed fact of life: it is itself evidence about the critic's true beliefs. The critic chose to short and criticize this company and not another one. I claim the short position is a sign that they do truly believe the company is bad. (Or at least that it can be made to look bad, but it's easiest to make a company look bad if it actually is.) In the case where the critic does not have a short position, it's almost tempting to ask why not, and wonder whether it's evidence they secretly don't believe what they're saying.
All that said, I agree that none of this matters from a PR point of view. The public perception (as I perceive it) is that to short a company is to vandalize it, basically, and probably approximately all short-selling is suspicious / unethical.Replies from: HaukeHillebrandt
↑ comment by HaukeHillebrandt ·
2020-10-24T08:20:55.891Z · EA(p) · GW(p)
it's possible to make money this way
Agreed, but I don't think there's a big market inefficiency here with risk-adjusted above market rate returns. Of course, if you do research to create private information then there should be a return to that research.
Trading based on private information is sometimes illegal, but sometimes not, depending on what the information is and why you have it, and which jurisdiction you're in. [...[
True, but I've heard that in the US, normally, if I lobby in the U.S. for an outcome and I short the stock about which I am lobbying, I have not violated any law unless I am a fiduciary or agent of the company in question.
I have my own counterargument
I really like this, but...
it can be made to look bad
This seems to be why people have a knee jerk reaction against it.