A study indicates that short sellers may be able to anticipate some negative news events as evidenced by the changes in short interest surrounding certain events that cause large negative returns. Specifically, firms are identified that have large one-day (negative and positive) returns and determine whether the level of or changes in short interest around this return are consistent with informed trading. Initial evidence indicates that there are significant increases in short interest prior to negatively perceived earnings announcements and events that denote a strategic change for the firm. When it is controlled for other factors, such as the book-to-market ratio, shares outstanding, and the standard deviation of prior returns, only strategic change and random, non-recurring events appear to be associated with significant increases in short interest prior to the large negative return. It appears that much short interest is driven by either speculation or hedging activities.