Short-Selling Hedge Funds

47 Pages Posted: 12 Apr 2024

See all articles by Jialin Qian

Jialin Qian

Georgia State University - Department of Finance

Zhen Shi

Georgia State University

Baozhong Yang

Georgia State University

Date Written: March 19, 2024

Abstract

Using a unique approach to identify hedge funds engaged in short-selling, we uncover that short-selling hedge funds exhibit superior performance and distinct trading behavior. Short-selling hedge funds outperform other funds by an average annual abnormal return of 4.9%. Short hedge funds are larger, hold more puts, and exhibit a higher portfolio turnover rate. The superior performance of short hedge funds is largely orthogonal to known hedge fund skill measures. Short-interest, long equity trades, and put positions all reveal that these hedge funds typically trade in opposition to retail trading moves, providing a potential source of the funds’ abnormal performance. Notably, in the aftermath of the 2021 Meme Stock phenomenon, short-selling hedge funds markedly scaled back their positions against retail trades, especially in stocks with heightened sentiments on Reddit’s WallStreetBets, indicating a pivotal shift in hedge fund trading strategies.

Keywords: Hedge Funds, Short Selling, Investment Skill, Retail Investor, Social Media

JEL Classification: G23, G41, G12, G14

Suggested Citation

Qian, Jialin and Shi, Zhen and Yang, Baozhong, Short-Selling Hedge Funds (March 19, 2024). Available at SSRN: https://ssrn.com/abstract=4764190 or http://dx.doi.org/10.2139/ssrn.4764190

Jialin Qian

Georgia State University - Department of Finance ( email )

University Plaza
Atlanta, GA 30303-3083
United States

HOME PAGE: http://sites.google.com/view/jialinqian

Zhen Shi (Contact Author)

Georgia State University ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Baozhong Yang

Georgia State University ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States
404-413-7350 (Phone)
404-413-7312 (Fax)

HOME PAGE: http://sites.google.com/view/baozhongyang/

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