Best Short

Robert Kosowski, Pasquale Della Corte and Nikolaos Rapanos

No 16319, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We infer investors' expectations about future stock returns through a measure of short conviction that exploits net short positions disclosed at the investor-stock level for European stock markets. A strategy that sells high-conviction stocks and buys low-conviction stocks, named Best Short, generates a risk-adjusted excess return that is larger than 8% per annum and differs from the performance of traditional strategies based on aggregate short interest. Its profitability, moreover, cannot be explained by transaction costs, stock characteristics, frictions in the securities lending market, leverage constraints, and measures of price inefficiency.

Keywords: Disclosure; Regulation; Short-sale performance; Anomalies; Hedge funds (search for similar items in EconPapers)
JEL-codes: G14 G15 G23 (search for similar items in EconPapers)
Date: 2021-07
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