Short Interest, Institutional Ownership, and Stock Returns
45 Pages Posted: 6 Apr 2004
Date Written: December 20, 2004
Stocks are short sale constrained when there is a strong demand to sell short and a limited supply of shares to borrow. Using data on both short interest, a proxy for demand, and institutional ownership, a proxy for supply, we find that constrained stocks underperform during 1988-2002 by a significant 215 basis points per month on an EW basis, although by only an insignificant 39 basis points per month on a VW basis. For the overwhelming majority of stocks, short interest and institutional ownership levels make short selling constraints unlikely.
Keywords: Short Sales, Limits to Arbitrage, Short Selling
JEL Classification: G12, G14
Suggested Citation: Suggested Citation