Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
We examine the impact of economic policy uncertainty on the trading activity of short sellers, finding an increase in shorting flows of overvalued stocks during periods of high policy uncertainty. After controlling for endogeneity, macroeconomic factors, and different measurements, the results hold; the transaction cost represented by the institutional shareholding ratio moderates the impact of economic policy uncertainty on short sellers. Uncertainty about fiscal policy, taxes, government spending, entitlement programs, and national security are the main reasons for short-flow changes. Furthermore, our paper responds to a recent call by Jiang et al. (2022) for future research on how short sellers trade company shares during periods of high economic and political uncertainty.