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Journal of Banking & Finance


Employing standard informed trading intuition, we develop testable hypotheses regarding short selling before and after bank enforcement action (EA) initiations. For U.S.-listed bank firm data for 2007 to 2012, we find strong support for differentiated short seller activity and skill in crisis versus non-crisis periods. In financial crises, short sellers predominantly position prior to EAs. The EA initiations then act as information-homogenizing and profit-taking events reducing incentives to remain positioned. In contrast, EAs in non-crisis periods appear to serve as wake-up calls that attract additional short selling. Our findings offer potentially important insights for regulators considering short sellers’ reactions to EA announcements in general, during financial crises, and when not experiencing a broad financial crisis.


Published in Journal of Banking & Finance by Elsevier. Available via doi: 10.1016/j.jbankfin.2021.106235.

This is an open access article under the CC BY-NC-ND license (

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