Abstract

http://ssrn.com/abstract=2138547
 
 

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Short Sellers' Trading on Anomalies


Byoung-Hyoun Hwang


Cornell University - Dyson School of Applied Economics and Management; Korea University - Department of Finance

Baixiao Liu


Florida State University

September 30, 2014


Abstract:     
This paper investigates the extent to which short sellers trade on anomalies and how these trades affect their profitability. Our evidence suggests that short sellers consider anomaly strategies, in particular those that have high Sharpe Ratios and low correlations with other anomaly strategies. Anomaly-based short selling contributes substantially to short sellers’ profitability. In particular, our analysis implies that a 1% increase in anomaly-based short interest precedes 0.626% lower returns in the next month. A corresponding 1% increase in short interest that is not anomaly-based is associated with (only) 0.083% lower returns. In total, we estimate that at least 11.7% of short sellers’ profitability can be traced to their trading on anomalies.

Number of Pages in PDF File: 43

Keywords: Short Sellers, Anomalies, Profitability

JEL Classification: G11, G12, G14, M41

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Date posted: August 30, 2012 ; Last revised: October 1, 2014

Suggested Citation

Hwang, Byoung-Hyoun and Liu, Baixiao, Short Sellers' Trading on Anomalies (September 30, 2014). Available at SSRN: http://ssrn.com/abstract=2138547 or http://dx.doi.org/10.2139/ssrn.2138547

Contact Information

Byoung-Hyoun Hwang (Contact Author)
Cornell University - Dyson School of Applied Economics and Management ( email )
Ithaca, NY
United States
HOME PAGE: http://www.bhwang.com
Korea University - Department of Finance
Seoul, 136-701
Korea
Baixiao Liu
Florida State University ( email )
Tallahasse, FL 32306
United States

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