Longs, Shorts, and the Cross-Section of Stock Returns
82 Pages Posted: 9 Dec 2016 Last revised: 13 Jan 2022
Date Written: December 1, 2021
Abstract
We study the relation between severe investor disagreement and stock returns based on the observed short-interest and long positions of hedge funds. We show strong disagreements are prevalent among active, sophisticated investors. From 1997 to 2014, 30% of highly shorted stocks have high hedge fund ownership, but these stocks do not earn abnormal returns. Evidence shows that large simultaneous holdings of short sellers and hedge fund managers likely arise from their information-acquisition activities. Although active long or short positions on average predict subsequent stock returns, neither long investors nor short sellers consistently prevail when the two sides disagree.
Keywords: Short Selling, Hedge Funds, Stock Returns, Disagreement, Dispersions in Analysts' Forecasts
JEL Classification: G10, J12
Suggested Citation: Suggested Citation