A First Glimpse into the Short Side of Hedge Funds
65 Pages Posted: 24 Jun 2016 Last revised: 20 Mar 2017
Date Written: March 16, 2017
We provide direct evidence about the profitability of hedge fund short trades in equities. We identify the opening and closing of short (and long) trades by combining data on institutional investors’ transactions and holdings. Hedge fund short sales covered within five trading days are highly profitable, but short positions kept open longer than five days are not. Other institutional investors’ short sales are not profitable. Additional evidence suggests that some of the profitability of short trades is due to trading on information and some stems from liquidity provision in both opening and covering trades. Short selling profitability is persistent.
Keywords: Hedge funds, short sale profitability, short sales, institutional investors
JEL Classification: G12, G14, G23
Suggested Citation: Suggested Citation