Short Trading and Short Investing

47 Pages Posted: 18 Dec 2017 Last revised: 15 Oct 2020

See all articles by Jesse Blocher

Jesse Blocher

Vanderbilt University - Finance

Peter H. Haslag

Vanderbilt University - Finance

Chi Zhang

University of Massachusetts Lowell

Date Written: October 14, 2020

Abstract

Short selling is measured in the literature as both constraint (e.g., lending fees) and activity (e.g., trades). We show that these two measures capture separate effects, which we characterize into two different strategies. The first strategy, "short trading," has minimal constraints, weekly scale return predictability and average risk. The second strategy, "short investing," has high constraints, multi-month return predictability and higher risk. Moreover, each strategy incorporates different types of information. Short trading includes short-lived information while short investing includes more long-lived, fundamental information. This diversity in short sellers has implications for both theoretical and empirical research.

Keywords: Informed trading, limits to arbitrage, price efficiency, short constraints, short volume, securities lending

JEL Classification: G12, G14, G23

Suggested Citation

Blocher, Jesse and Haslag, Peter H. and Zhang, Chi, Short Trading and Short Investing (October 14, 2020). Vanderbilt Owen Graduate School of Management Research Paper No. 3088833, Journal of Empirical Finance, Vol. 59, 2020, Available at SSRN: https://ssrn.com/abstract=3088833 or http://dx.doi.org/10.2139/ssrn.3088833

Jesse Blocher

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

Peter H. Haslag (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

HOME PAGE: http://https://www.sites.google.com/site/peterhaslag/

Chi Zhang

University of Massachusetts Lowell ( email )

Pulichino Tong Building
Manning School of Business
Lowell, MA 01854
United States

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