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Short selling and market anomalies

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  • Wu, Juan (Julie)
  • Zhang, Jianzhong (Andrew)

Abstract

We assess the importance of well-known market anomalies for shorting strategies and how it changes over the 1988–2014 period. We find that anomalies contribute to both relative short interest (RSI) and RSI's negative information content about future earnings surprises and analyst actions. Anomalies explain more than half of the RSI-return relation. These results neither attenuate over time nor vary with market sentiment. RSI on least-shorted firms contains unique return-predictive information, which becomes increasingly important over time while RSI on most-shorted firms does not. Our findings suggest that a significant portion of short sellers' informational advantage comes from exploiting market anomalies.

Suggested Citation

  • Wu, Juan (Julie) & Zhang, Jianzhong (Andrew), 2019. "Short selling and market anomalies," Journal of Financial Markets, Elsevier, vol. 46(C).
    • Handle: RePEc:eee:finmar:v:46:y:2019:i:c:s1386418118303525
    DOI: 10.1016/j.finmar.2019.07.001
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    More about this item

    Keywords

    Financial information; Market anomalies; Short selling;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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