Costly long-short strategies under short-sale constraints: Chinese Evidence

Forthcoming in International Review of Finance

12 Pages Posted: 12 Jan 2015 Last revised: 13 Sep 2017

See all articles by Timothy (Jun) Lu

Timothy (Jun) Lu

emlyon business school

Jinjuan Ren

University of Macau

Yan Zhao

China Everbright Bank

Date Written: September 2, 2017

Abstract

Long-short portfolios based on market anomalies are subject to ubiquitous short-sale constraints. Few studies directly quantify the impact of shorting on long-short strategies, largely due to the complexity of the shorting practice. We examine the Chinese market, in which the scope of the short-sale constraint and the shorting cost are clearly specified. Among size, value, and momentum strategies, we find that only size earns significant profits before short-sale constraints are considered. Imposing the scope of short-sale constraint by selling only shortable stocks does not materially change the profits. Deducting shorting costs, however, essentially wipes off all the profits of long-short portfolios.

Keywords: anomalies; short-sale constraint; shorting cost; China

JEL Classification: G11, G12, G15

Suggested Citation

Lu, Timothy (Jun) and Ren, Jinjuan and Zhao, Yan, Costly long-short strategies under short-sale constraints: Chinese Evidence (September 2, 2017). Forthcoming in International Review of Finance, Available at SSRN: https://ssrn.com/abstract=2548307 or http://dx.doi.org/10.2139/ssrn.2548307

Timothy (Jun) Lu

emlyon business school ( email )

international education building
East China Normal University
Shanghai, Shanghai 200062
China

Jinjuan Ren (Contact Author)

University of Macau ( email )

Room 4079, E22, Faculty of Business Administration
University of Macau
Taipa, Taipa Nil
Macau
(853) 8822-4185 (Phone)

HOME PAGE: http://www.umac.mo/fba/staff/susanren.html

Yan Zhao

China Everbright Bank ( email )

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