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

Peking University HSBC Business School

Jinjuan Ren

University of Macau

Yan Zhao

China Everbright Bank

Multiple version iconThere are 2 versions of this paper

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

Peking University HSBC Business School ( email )

University Town
Nanshan District
Shenzhen, Guang Dong 518055
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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