Smart Retail Traders, Short Sellers, and Stock Returns

55 Pages Posted: 1 Dec 2020

See all articles by Ekkehart Boehmer

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business

Wanshan Song

Shanghai University of Finance and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 23, 2020

Abstract

Using short sell transactions data from 2010 to 2016, this paper is the first to provide a comprehensive sample of short selling initiated by retail investors. We find that retail short selling can predict negative stock returns. A trading strategy that mimics weekly retail shorting earns an annualized risk-adjusted value-(equal-) weighted return of 6% (12.25%). Their predictive power is beyond that coming from retail investors as a group or from off-exchange institutional short sellers. Our results suggest that retail short sellers can profitably exploit public information, especially when it is negative. Retail short sellers also tend to be contrarians who provide liquidity when the market is one-sided due to (institutional) buying pressure.

Keywords: Short Sell, Retail Investors, FINRA, Return Predictability, Liquidity Provision

JEL Classification: G11, G12, G14, G20

Suggested Citation

Boehmer, Ekkehart and Song, Wanshan, Smart Retail Traders, Short Sellers, and Stock Returns (October 23, 2020). Available at SSRN: https://ssrn.com/abstract=3723096 or http://dx.doi.org/10.2139/ssrn.3723096

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business ( email )

Singapore

Wanshan Song (Contact Author)

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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