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Short-Sale Strategies and Return Predictability

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Author Info
Karl B. Diether
Kuan-Hui Lee
Ingrid M. Werner
Abstract

We examine short selling in US stocks based on new SEC-mandated data for 2005. There is a tremendous amount of short selling in our sample: short sales represent 24% of NYSE and 31% of Nasdaq share volume. Short sellers increase their trading following positive returns and they correctly predict future negative abnormal returns. These patterns are robust to controlling for voluntary liquidity provision and for opportunistic risk-bearing by short sellers. The results are consistent with short sellers trading on short-term overreaction of stock prices. A trading strategy based on daily short-selling activity generates significant positive returns during the sample period. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/rfs/hhn047
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Publisher Info
Article provided by Oxford University Press for Society for Financial Studies in its journal The Review of Financial Studies.

Volume (Year): 22 (2009)
Issue (Month): 2 (February)
Pages: 575-607
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:oup:rfinst:v:22:y:2009:i:2:p:575-607

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  1. Hirshleifer, David & Teoh, Siew Hong & Yu, Jeff Jiewei, 2009. "Short Arbitrage, Return Asymmetry And The Accrual Anomaly," MPRA Paper 16487, University Library of Munich, Germany. [Downloadable!]
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This page was last updated on 2009-10-23.

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