Short selling meets hedge fund 13F: An anatomy of informed demand

Yawen Jiao, Massimo Massa and Hong Zhang

Journal of Financial Economics, 2016, vol. 122, issue 3, 544-567

Abstract: The existing literature treats the short side (i.e., short selling) and the long side of hedge fund trading (i.e., fund holdings) independently. The two sides, however, complement each other: opposite changes in the two are likely to be driven by information, whereas simultaneous increases (decreases) of the two may be motivated by hedging (unwinding) considerations. We use this intuition to identify informed demand and document that it exhibits highly significant predictive power over returns (approximately 10% per year). We also find that informed demand forecasts future firm fundamentals, suggesting that hedge funds play an important role in information discovery.

Keywords: Short selling; Hedge funds; 13F; Informed demand; Hedging (search for similar items in EconPapers)
JEL-codes: G14 G20 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:122:y:2016:i:3:p:544-567

DOI: 10.1016/j.jfineco.2016.09.001

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