Common Short Selling and Excess Comovement

Posted: 30 Oct 2017 Last revised: 10 Jul 2020

See all articles by Marco Valerio Geraci

Marco Valerio Geraci

University of Cambridge - Cambridge-INET Institute

Jean-Yves Gnabo

Facult├ęs Universitaires Notre-Dame de la Paix (FUNDP)

David Veredas

Vlerick Business School

Date Written: July 4, 2020

Abstract

We show that common short sold capital can explain future six-factor excess return correlation one month ahead, controlling for many pair characteristics, including similarities in size, book-to-market, and momentum. We explore the possible mechanisms that could give rise to this relationship. We find that the asset class effect cannot explain the uncovered relationship. Rather, the relationship is consistent with the information diffusion view of comovement, which we identify using additional profiling data for short sellers.

Keywords: short selling, correlation, informed trading

JEL Classification: G14

Suggested Citation

Geraci, Marco Valerio and Gnabo, Jean-Yves and Veredas, David, Common Short Selling and Excess Comovement (July 4, 2020). Available at SSRN: https://ssrn.com/abstract=3061152 or http://dx.doi.org/10.2139/ssrn.3061152

Marco Valerio Geraci (Contact Author)

University of Cambridge - Cambridge-INET Institute ( email )

Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

Jean-Yves Gnabo

Facult├ęs Universitaires Notre-Dame de la Paix (FUNDP) ( email )

Rempart de la Vierge, 8
Namur B-5000
Belgium

David Veredas

Vlerick Business School ( email )

Library
REEP 1
Gent, BE-9000
Belgium

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