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The Short-Selling Skill of Institutions and Individuals: a Market-wide and Out-of-sample Analysis

58 Pages Posted: 9 Jan 2017 Last revised: 14 Sep 2017

Fernando Chague

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Rodrigo De-Losso

University of Sao Paulo (USP) - Department of Economics

Bruno Giovannetti

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Date Written: September 13, 2017

Abstract

Using market-wide data from the Brazilian stock lending market, we find strong evidence of short-selling skill among some institutions and individuals. Skilled short-sellers present out-of-sample performance persistence, both over time and across stocks. Performance persistence is robust: by randomly splitting the sample across stocks, we show that performance in a group of stocks often predicts performance in another group of stocks. We then study how skilled short-sellers trade. We find that most of their profit does not come from firm-specific private information, they follow short-term momentum strategies, and they do not display the disposition effect.

Keywords: short-selling, skilled investors, out-of-sample performance, short-term momentum, disposition effect

JEL Classification: G12, G14

Suggested Citation

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, The Short-Selling Skill of Institutions and Individuals: a Market-wide and Out-of-sample Analysis (September 13, 2017). Available at SSRN: https://ssrn.com/abstract=2894507

Fernando Chague

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

Rodrigo De-Losso

University of Sao Paulo (USP) - Department of Economics ( email )

Av. Prof. Luciano Gualberto 908
Sao Paulo SP, 05508-900
Brazil
551130916070 (Phone)

Bruno Giovannetti (Contact Author)

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva, 474, 10o andar
Sao Paulo, Sao Paulo 01332000
Brazil

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