42 Pages Posted: 9 Dec 2016 Last revised: 14 Dec 2016
Date Written: December 7, 2016
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: 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