While some short sales are based on information or opinions about a
firm's share price, this is not the case with many others. This
statement coincides with the increasing use of arbitrage-related hedge
fund strategies whereas it collides with public consensus that blames
short sellers for decreasing stock prices and exacerbating the economic
downturn. Sebastian Werner examines aggregate short sales and
convertible bond arbitrage, which is a typical hedge fund strategy that
involves a significant short position in the underlying stock of a long
convertible bond position for hedging purposes. Focusing on events of
extreme stock price changes and short selling activity, he provides
insightful and new observations of the significant difference in the
trading pattern, information content and resulting impact on stock
returns of arbitrage- versus valuation-based short selling activities.