In defence of short-sellers

The Viceroy-Vedanta affair that is currently front-page news has similarities with the Hindenburg-Adani affair.

- DEVANGSHU DATTA

In both cases, an overseas entity went short on a well-known group, and released reports explaining why. I'm not here to discuss the merits of the reports. It's up to traders who wish to take exposures (long or short) to make their own judgments.

There are other interesting points one can make. The strategy of taking a position and then publicly revealing the position, and talking up the rationale is not new. Long investors have been doing this for over a century. In the early 2000s, short-sellers like Mark Cuban also started employing this strategy. The difference is that they started telling the world why they had sold a stock.

The logic for revealing exposure is the same: The hope that more money piles into the trade, and creates momentum to move the price quickly in favour of the early bird. It's a creative use of the concept of disclosure.

One key difference in the 21st century is the scale of amplification. The media reach of any random trader is much more. The subreddit Wall Street Bets (WSB) is an extreme example of reach. WSB hosts millions of retail traders and some of them are very savvy. WSB is unusual in that the research is often of high quality.