A First Look at Mutual Funds That Use Short Sales

Honghui Chen, Hemang Desai and Srinivasan Krishnamurthy

Journal of Financial and Quantitative Analysis, 2013, vol. 48, issue 3, 761-787

Abstract: We provide a first look at short selling by mutual funds, a phenomenon not examined by prior research. Mutual funds that short do so frequently and in significant amounts, averaging about 16% of fund assets. These funds outperform benchmarks by 1.5% per year. An analysis of portfolio holdings shows that these funds generate abnormal performance from their short (4.1% per year) and long (1.5% per year) positions. Managers of short-selling mutual funds also exhibit superior performance in other funds they manage that do not use short sales. These findings suggest that managers of short-selling mutual funds are skilled.

Date: 2013
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