Daily short interest, idiosyncratic risk, and stock returns

Andrea S. Au, John Doukas () and Zhan Onayev

Journal of Financial Markets, 2009, vol. 12, issue 2, 290-316

Abstract: This paper examines the relation between short selling and returns and the impact of arbitrage costs on short sellers' behavior. Using daily UK short selling data, we find that stocks with low short interest levels experience significant positive returns on both an equal- and value-weighted basis. Economic theory predicts that short sellers avoid establishing positions in stocks with high idiosyncratic risk. Our results indicate a negative relation between short interest and returns among high idiosyncratic risk stocks and that short selling activity is mostly concentrated in low idiosyncratic risk stocks where it is less costly to arbitrage fundamental risk.

Keywords: Short-sale; Idiosyncratic; risk (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:12:y:2009:i:2:p:290-316

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