What Makes Short Selling Risky: Other Short Sellers

48 Pages Posted: 3 Dec 2020

Date Written: October 20, 2020

Abstract

Short selling is risky. Borrowed shares may be recalled and the short seller may be forced to terminate a position early. The stock price may rise forcing the short seller to post additional collateral. Borrowing fees may be increased before the short position is closed. Utilization is the proportion of shares that are available to lend that are on loan. Each of these three short selling risks increase with high levels of utilization. Both high borrowing fees and high utilization are associated with lower stock returns and lower four-factor alphas over the following year.

Keywords: Short selling, share loans, hard-to-borrow

JEL Classification: G10, G11, G12, G14

Suggested Citation

Schultz, Paul, What Makes Short Selling Risky: Other Short Sellers (October 20, 2020). Available at SSRN: https://ssrn.com/abstract=3715524 or http://dx.doi.org/10.2139/ssrn.3715524

Paul Schultz (Contact Author)

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

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