Study: Wall Street's short sellers wrongly maligned—detected red flags ahead of US financial crisis
Hemang Desai, business professor at SMU's Cox School of Business, talks about results from his new research, which indicates that short sellers may have been the earliest detectors of the impending banking crisis.
By Jennifer Warren
(Phys.org) —Numerous banks in the United States failed during the recent financial crisis—and more would have, absent governmental intervention, writes short-selling expert Hemang Desai, a professor at Southern Methodist University.
Subsequently, a substantial contraction of credit occurred and the effect on the economy was devastating for businesses and households. In new research, Desai and co-authors provide evidence that short sellers were sensitive to the leading indicators of the crisis from banks' financial statements. They were first to react to the impending crisis among the financial intermediaries examined, including equity analysts, ratings agencies and auditors, according to Desai, an accounting professor in the SMU Cox School of Business and nationally recognized researcher on mergers and acquisitions, corporate restructuring, short selling and financial reporting.
Even from the highest levels of leadership in the financial sector, the suggestion was that academia, regulators and the Federal Reserve "missed" the warning signs of the banking and financial crisis....
Read more at: http://phys.org/news/2014-01-wall-street-short-sellers-wrongly.html#jCp