Abstract

http://ssrn.com/abstract=2022477
 


 



Have Short Sellers Become More Sophisticated? Evidence from Market Anomalies


Juan (Julie) Wu


University of Georgia

Andrew (Jianzhong) Zhang


University of Nevada, Las Vegas - Department of Finance

May 1, 2013


Abstract:     
We examine how equity short sellers form trading strategies when faced with an increasing “crowded-trade” effect (Stein 2009) over time in the context of a broad range of well-known asset pricing anomalies. We find that short selling has increased over time, with more increase on the short side of each anomaly. Overpricing on the short side of these anomalies has disappeared in recent years in firms with less-binding constraint. Short sellers’ trading on crowded signals based on these known anomalies largely explains the negative relation between short interest and returns in the early sample period of 1988-1999, but only explains part of this relation in more recent period of 2000-2011, suggesting that over time short sellers have become more sophisticated in trading on less-crowded signals independent of these known anomalies. Investors who trade on both anomaly and short interest signals are better off than only trading on the anomaly signal.

Keywords: Short selling, financial market anomaly, short arbitrage

JEL Classification: G12, G14

working papers series





Not Available For Download

Date posted: March 15, 2012 ; Last revised: October 28, 2013

Suggested Citation

Wu, Juan (Julie) and Zhang, Andrew (Jianzhong), Have Short Sellers Become More Sophisticated? Evidence from Market Anomalies (May 1, 2013). Available at SSRN: http://ssrn.com/abstract=2022477 or http://dx.doi.org/10.2139/ssrn.2022477

Contact Information

Juan (Julie) Wu (Contact Author)
University of Georgia ( email )
Dept. of Finance, Terry College of Business
University of Georgia
Athens, GA 30602-6254
United States
HOME PAGE: http://www.terry.uga.edu/directory/profile/juliewu/
Andrew (Jianzhong) Zhang
University of Nevada, Las Vegas - Department of Finance ( email )
4505 S. Maryland Parkway
Box 456008
Las Vegas, NV 89154-6008
United States
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