Trading on tension: Geopolitical motives and market distortions

We examine how U.S.-China geopolitical tensions affect the informational role of activist short sellers. Using hand-collected data on 183 reports targeting U.S.-listed Chinese firms from 2010 to 2020, we find that campaign activity increases during high-tension periods, driven by follow-up reports on already-targeted firms rather than new investigations. Reports released during these periods contain more negative language, are associated with larger but reversing price declines, and include fraud allegations less likely to be verified. These patterns suggest that geopolitical tensions shift activist short selling from price discovery toward bear-raid-type activity.