Short Sellers' Trading on Anomalies

46 Pages Posted: 30 Aug 2012 Last revised: 18 Dec 2014

Byoung-Hyoun Hwang

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

Baixiao Liu

Florida State University

Date Written: December 17, 2014

Abstract

We study arbitrageurs specializing in the shorting of seemingly overpriced securities. Contrary to popular accounts that the convexity in fee structure utilized in the hedge fund industry encourages managers to take on risk, our evidence suggests that short arbitrageurs shy away from risk and prefer low-risk, high-return strategies that have weak correlations with other strategies. Correspondingly, we present evidence that short arbitrageurs act in an informed and market-stabilizing manner.

Keywords: Arbitrageurs, Short Sellers, Incentive Effects of Contracts, Market Efficiency

JEL Classification: G11, G12, G14, M41

Suggested Citation

Hwang, Byoung-Hyoun and Liu, Baixiao, Short Sellers' Trading on Anomalies (December 17, 2014). Available at SSRN: https://ssrn.com/abstract=2138547 or http://dx.doi.org/10.2139/ssrn.2138547

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
United States

Baixiao Liu

Florida State University ( email )

Tallahasse, FL 32306
United States

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