A cloudy day in the market: short selling behavioural bias or trading strategy

Abstract

Purpose – Research draws the distinction between noise traders and informed traders. Research also documents market biases in equity returns due to cloud cover, a non‐informational (noise) event, showing that returns decrease on cloudy days. The purpose of this paper is to investigate the trading behaviour of short‐sellers, who are considered informed traders, conditioning on the level of cloudiness, and find an increase in short selling with the level of cloudiness. Additionally, the paper finds decreases in short selling the three days prior to a cloudy day (or series of cloudy days).