Short-Sellers and Short Covering

James Clunie (), Peter Moles and Tatiana Pyatigorskaya
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James Clunie: Scottish Widows Investment Partnership, U.K.
Peter Moles: University of Edinburgh Business School, U.K.
Tatiana Pyatigorskaya: Merrill Lynch Wealth Management, U.K.

Multinational Finance Journal, 2009, vol. 13, issue 3-4, 265-292

Abstract: This study fills an important gap in the literature on loss realization aversion. It shows how a ‘sophisticated’ sub-set of investors, namely short-sellers, react to losses. Using daily data on stock lending, we estimate the average price at which short positions were initiated, thus permitting a study of short-sellers’ responses to their own book losses. We find that short-sellers close their positions in response to losses and not simply in response to rising share prices. This is a key result and a distinction from findings in related research. We conclude that short-sellers do not exhibit an aversion to realizing losses, but instead accept their losses or ‘mistakes’ systematically.

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Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:13:y:2009:i:3-4:p:265-292

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