DP16319 Best Short
|Author(s):||Pasquale Della Corte, Robert Kosowski, Nikolaos Rapanos|
|Publication Date:||July 2021|
|Keyword(s):||Anomalies, Disclosure, Hedge Funds, Regulation, Short-sale performance|
|JEL(s):||G14, G15, G23|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=16319|
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.