Is Regulatory Short Sale Data a Profitable Predictor of UK Stock Returns?

Posted: 16 Oct 2020

See all articles by Michael Ashby

Michael Ashby

Faculty of Economics, University of Cambridge; Downing College, Cambridge

Date Written: August 19, 2020

Abstract

Regulator-required public disclosures of net short positions do not provide a profitable investment signal for UK stocks. While long-short (zero initial outlay) portfolios based on this signal usually make a profit on average, it is rarely statistically significant in either gross or risk-adjusted terms. The issue is that the short sides of the portfolios make substantial losses. This is true even when using information in the trend in disclosures to form portfolios, rather than using the most recent disclosures, which is a more standard procedure. Unit initial outlay portfolios based on the disclosures that are allowed to take short positions do not reliably significantly outperform the market. Certain long-only unit initial outlay portfolios based on the disclosures do reliably significantly outperform the market. However, this out-performance is economically modest: about 1 percentage point a year in gross and risk-adjusted terms.

Keywords: Short Sales, Short Selling Regulation, Net Short Position Disclosure, Investment Signal, Anomaly

JEL Classification: G11, G14

Suggested Citation

Ashby, Michael, Is Regulatory Short Sale Data a Profitable Predictor of UK Stock Returns? (August 19, 2020). Available at SSRN: https://ssrn.com/abstract=3682230 or http://dx.doi.org/10.2139/ssrn.3682230

Michael Ashby (Contact Author)

Faculty of Economics, University of Cambridge ( email )

Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

Downing College, Cambridge ( email )

Regent St
Cambridge, CB2 1DQ
United Kingdom

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