Download this Paper Open PDF in Browser

Longs, Shorts, and the Cross-Section of Stock Returns

42 Pages Posted: 9 Dec 2016 Last revised: 14 Dec 2016

Pedram Nezafat

Michigan State University

Tao Shen

Tsinghua University

Qinghai Wang

University of Central Florida - College of Business Administration

J. (Julie) Wu

University of Nebraska at Lincoln

Date Written: December 7, 2016

Abstract

We measure investor disagreement directly with observed short interest and long positions of hedge funds and show that disagreements about firms' prospects are prevalent among active, sophisticated investors. During the period 1997-2014, over 30% of highly shorted stocks also had high hedge fund ownership. Stocks with strong investor disagreement do not earn abnormal returns. Our results differ from those based on measures of disagreements of other market participants. The evidence is consistent with the view that disagreement among informed investors arises from active information acquisition and leads to more efficient prices.

Keywords: Short Selling, Hedge Funds, Stock Returns, Disagreement, Dispersions in Analysts' Forecasts

JEL Classification: G10, J12

Suggested Citation

Nezafat, Pedram and Shen, Tao and Wang, Qinghai and Wu, J. (Julie), Longs, Shorts, and the Cross-Section of Stock Returns (December 7, 2016). Available at SSRN: https://ssrn.com/abstract=2882250 or http://dx.doi.org/10.2139/ssrn.2882250

Pedram Nezafat (Contact Author)

Michigan State University ( email )

MI
United States

Tao Shen

Tsinghua University ( email )

Department of Finance
School of Economics and Management
China

Qinghai Wang

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

J. (Julie) Wu

University of Nebraska at Lincoln ( email )

Lincoln, NE 68588
United States

Paper statistics

Downloads
111
Rank
210,119
Abstract Views
525