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Down but not out: plenty of returns available for shorted down stocks

journal contribution
posted on 2019-05-01, 00:00 authored by E Galariotis, Bob Li, D Chai
Unlike in other developed equity markets, short sellers in Australia are required to report their covered short positions on a daily basis to the market regulator, who subsequently disseminates this information freely to the public in a very timely manner. If short selling contains negative information, a strategy that longs (shorts) stocks with low (high) short selling interest should result in positive returns. This study examines the profitability of such a strategy, named the short selling interest momentum trading strategy. The results indicate that significant returns can be made by following short sellers’ actions ex post. Further, stronger returns are made from price momentum winner stocks and short sellers behave rationally towards short selling activities. The findings from this study are robust to various controls relating to size, industry, price momentum and options.

History

Journal

International review of financial analysis

Volume

63

Pagination

296 - 306

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

1057-5219

Language

eng

Publication classification

C1 Refereed article in a scholarly journal

Copyright notice

2018, Elsevier Inc.