Geographic Proximity in Short Selling

49 Pages Posted: 7 Jun 2021 Last revised: 13 Apr 2023

See all articles by Xiaolin Huo

Xiaolin Huo

Renmin University of China

Xin Liu

School of Finance, Renmin University of China

Vesa Pursiainen

University of St. Gallen; Swiss Finance Institute

Date Written: April 12, 2023

Abstract

Micro-level geographic proximity is associated with significantly higher returns from short selling within London. Short trades by institutions near the target headquarters are followed by larger negative abnormal returns. Proximity matters more for stocks that are small, volatile, and have less sellside analyst coverage, as well as for stocks with low market correlations and inefficient prices. Funds exhibiting larger effect of proximity are smaller and have higher returns and higher idiosyncratic volatility. The relationship between distance and short returns is weaker during the COVID-19 pandemic. Short trades are correlated geographically, with proximate institutions more likely to short the same stocks.

Keywords: short selling, geography, information, investor performance, hedge funds

JEL Classification: D82, G12, G14, G15, G23

Suggested Citation

Huo, Xiaolin and Liu, Xin and Pursiainen, Vesa, Geographic Proximity in Short Selling (April 12, 2023). Available at SSRN: https://ssrn.com/abstract=3854459 or http://dx.doi.org/10.2139/ssrn.3854459

Xiaolin Huo (Contact Author)

Renmin University of China

59 Zhongguancun Street
Beijing, Beijing 100872
China

Xin Liu

School of Finance, Renmin University of China ( email )

Room 307A
Mingde Main Building, Renmin University of China
Beijing, Beijing 100872
China

Vesa Pursiainen

University of St. Gallen ( email )

Swiss Institute of Banking and Finance
Unterer Graben 21
St.Gallen, 9000
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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