Short trading and short investing

Jesse Blocher, Peter Haslag and Chi Zhang

Journal of Empirical Finance, 2020, vol. 59, issue C, 154-171

Abstract: Short selling is measured in the literature as both constraint (e.g., lending fees) and activity (e.g., trades). We show that these two measures capture separate effects, which we characterize into two different strategies. The first strategy, “short trading,” has minimal constraints, weekly scale return predictability and average risk. The second strategy, “short investing,” has high constraints, multi-month return predictability and higher risk. Moreover, each strategy incorporates different types of information. Short trading includes short-lived information while short investing includes more long-lived, fundamental information. This diversity in short sellers has implications for both theoretical and empirical research.

Keywords: Informed trading; Limits to arbitrage; Price efficiency; Short constraints; Short volume; Securities lending (search for similar items in EconPapers)
JEL-codes: G12 G14 G23 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:59:y:2020:i:c:p:154-171

DOI: 10.1016/j.jempfin.2020.09.007

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