Do Specialists' Short Sales Predict Returns?
5 Pages Posted: 19 May 2006
This paper provides evidence of a market inefficiency. Between 1942 and 1984, the specialists' short sales ratio has foretold periods of higher and lower returns on the New York Stock Exchange. Average stock returns have been significantly higher after low values of the ratio (marking low short sales by specialists) and significantly lower after high values of the ratio. Not only has the market been strong-form inefficient but these data have been publicly available with a slight lag, indicating semi-strong form inefficiency.
Keywords: market inefficiency, abnormal returns, specialist short sales
JEL Classification: G14
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