How Do Short Selling Costs and Restrictions Affect the Profitability of Stock Anomalies?

32 Pages Posted: 9 Nov 2017 Last revised: 11 Oct 2018

See all articles by Filip Bekjarovski

Filip Bekjarovski

Tilburg University; Universite de Toulouse 1 Capitole; NN Group

Date Written: May 7, 2018

Abstract

Short selling frictions cannot explain the persistence of seven prominent stock anomalies. Long-only investing is robust and profitable and can be further enhanced by using a synthetic short. Moreover, portfolios restricted to stocks that are easy to short sell continue to have large and significant short anomaly alphas. The paper derives cost bounds for switching between implementation methods and shows that the cost associated with short anomaly positions is small relative to their profitability contribution using a proprietary database of borrowing fees. Overall, the empirical evidence does not support the implications of arbitrage asymmetry that mispricing is concentrated in short positions where it is too costly to exploit.

Keywords: short selling restrictions, short selling costs, factors, anomalies, limits to arbitrage

JEL Classification: G1, G10, G11, G12, G14, G23

Suggested Citation

Bekjarovski, Filip, How Do Short Selling Costs and Restrictions Affect the Profitability of Stock Anomalies? (May 7, 2018). Available at SSRN: https://ssrn.com/abstract=3066750 or http://dx.doi.org/10.2139/ssrn.3066750

Filip Bekjarovski (Contact Author)

Tilburg University

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

Universite de Toulouse 1 Capitole

2 Rue du Doyen-Gabriel-Marty
Toulouse, 31042
France

NN Group ( email )

Schenkkade 65
AS Den Haag
Netherlands

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