Short Selling and Market Anomalies
55 Pages Posted: 24 May 2014 Last revised: 12 Jul 2019
Date Written: July 9, 2019
We assess the importance of well-known market anomalies for shorting strategies and how it changes over the 1988-2014 period. We find that anomalies contribute to both relative short interest (RSI) and RSI’s negative information content about future earnings surprises and analyst actions. Anomalies explain more than half of the RSI-return relation. These results neither attenuate over time nor vary with market sentiment. RSI on least-shorted firms contains unique return-predictive information, which becomes increasingly important over time while RSI on most-shorted firms does not. Our findings suggest that a significant portion of short sellers’ informational advantage comes from exploiting market anomalies.
Keywords: financial information, market anomalies, short selling
JEL Classification: G12, G14
Suggested Citation: Suggested Citation