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Common Short Selling and Excess Comovement

Marco Valerio Geraci, Jean-Yves Gnabo () and David Veredas

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: We show that common short sold capital can explain future six-factor excess return correlation one month ahead, controlling for many pair characteristics, including similarities in size, book-to-market, and momentum. We explore the possible mechanisms that could give rise to this relationship. We find that price pressure cannot explain the uncovered relationship. Rather, the relationship is consistent with informed trading, which we identify using additional profiling data for short sellers.

Keywords: short selling; comovement; hedge funds (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2020-07-05
New Economics Papers: this item is included in nep-fmk
Note: mvg23
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