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Short-selling constraints and ‘quantitative’ investment strategies

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  • Panagiotis Andrikopoulos
  • James Clunie
  • Antonios Siganos

Abstract

This study uses stock lending data from Data Explorers to assess the impact of short-selling constraints on the profitability of eight investment strategies. Returns from unconstrained long--short portfolios are compared with those from ‘feasible’ portfolios, constrained to short-selling only those shares that can be borrowed. We find that only a small percentage of the firms identified by Datastream for short-selling are available for lending, but our results suggest that differences in profitability between unconstrained and feasible strategies are statistically insignificant. We also find that the stock borrowing fee for the majority of the strategies is normally less than 1% per annum, showing that prior UK studies, which assumed that the short-selling fee is flat at 1.50% per annum, have overestimated such cost. Overall, these results indicate that stock loan unavailability and stock borrowing fees do not explain the persistence of returns from anomaly-exploiting quantitative investment strategies in the UK stock market.

Suggested Citation

  • Panagiotis Andrikopoulos & James Clunie & Antonios Siganos, 2013. "Short-selling constraints and ‘quantitative’ investment strategies," The European Journal of Finance, Taylor & Francis Journals, vol. 19(1), pages 19-35, January.
    • Handle: RePEc:taf:eurjfi:v:19:y:2013:i:1:p:19-35
    DOI: 10.1080/1351847X.2011.634426
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    Cited by:

    1. Bryan Foltice & Thomas Langer, 2015. "Profitable momentum trading strategies for individual investors," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 29(2), pages 85-113, May.
    2. Kwaku Opong & Antonios Siganos, 2013. "Compositional changes in the FTSE100 index from the standpoint of an arbitrageur," Journal of Asset Management, Palgrave Macmillan, vol. 14(2), pages 120-132, April.

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