Short-Selling Constraints and ‘Quantitative’ Investment Strategies

The European Journal of Finance, Vol.19, Issue: 1-2, pp.19-35

Posted: 5 Nov 2014

See all articles by Panagiotis Andrikopoulos

Panagiotis Andrikopoulos

Centre for Financial and Corporate Integrity (CFCI), Coventry University

James Clunie

Jupiter Asset Management Ltd.

Antonios Siganos

University of Glasgow

Date Written: January 31, 2013

Abstract

This study uses stock lending data from Data Explorers to assess the impact of short-selling constraints on the profitability of eight investment strategies. Returns from unconstrained long-short portfolios are compared with those from ‘feasible’ portfolios, constrained to short-selling only those shares that can be borrowed. We find that only a small percentage of the firms identified by Datastream for short-selling are available for lending, but our results suggest that differences in profitability between unconstrained and feasible strategies are statistically insignificant. We also find that the stock borrowing fee for the majority of the strategies is normally less than 1% per annum, showing that prior UK studies, which assumed that the short-selling fee is flat at 1.50% per annum, have overestimated such cost. Overall, these results indicate that stock loan unavailability and stock borrowing fees do not explain the persistence of returns from anomaly-exploiting quantitative investment strategies in the UK stock market.

Keywords: stock market anomalies; stock-lending fee; short-selling constraints; Data Explorers

JEL Classification: G14; G32

Suggested Citation

Andrikopoulos, Panagiotis and Clunie, James and Siganos, Antonios, Short-Selling Constraints and ‘Quantitative’ Investment Strategies (January 31, 2013). The European Journal of Finance, Vol.19, Issue: 1-2, pp.19-35. Available at SSRN: https://ssrn.com/abstract=2518594

Panagiotis Andrikopoulos (Contact Author)

Centre for Financial and Corporate Integrity (CFCI), Coventry University ( email )

Priory Street
Coventry, CV1 5FB
United Kingdom
+44(0)247 765 7920 (Phone)

James Clunie

Jupiter Asset Management Ltd. ( email )

1 Grosvenor Place
London, SW1X 7JJ
United Kingdom

Antonios Siganos

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

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