46 Pages Posted: 30 Aug 2012 Last revised: 18 Dec 2014
Date Written: December 17, 2014
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: Suggested Citation