Abstract

http://ssrn.com/abstract=2440922
 
 

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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

April 2015


Abstract:     
We examine how short sellers exploit anomaly-based trading strategies over time. While they increasingly use anomaly-based strategies to short overpriced firms, they even more intensively use these strategies to avoid underpriced firms. Over the entire sample period, short arbitrage of market anomalies fully explains abnormal returns to highly shorted stocks. However, market anomalies help shorters to avoid shorting wrong firms only in the early years, which is in contrast to recent years when non-anomaly strategies are increasingly used to avoid potential losses. Short interest increasingly contains more return predicative information beyond anomalies, and average investors are better off when trading on both anomalies and short interest and even more so in recent years. The evidence suggests that while short sellers continue to use anomaly signals over time, they have become more sophisticated in that they explore more non-anomaly signals to improve performance in recent years.

Number of Pages in PDF File: 49

Keywords: financial market anomalies, short arbitrage, trading strategies

JEL Classification: G12, G14


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Date posted: May 24, 2014 ; Last revised: April 22, 2015

Suggested Citation

Wu, Juan (Julie) and Zhang, Andrew (Jianzhong), Have Short Sellers Become More Sophisticated? Evidence from Market Anomalies (April 2015). Available at SSRN: http://ssrn.com/abstract=2440922 or http://dx.doi.org/10.2139/ssrn.2440922

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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