Working Paper: CEPR ID: DP16319
Authors: Pasquale Della Corte; Robert Kosowski; Nikolaos P. Rapanos
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 strategiesbased 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
JEL Codes: G14; G15; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| investor behavior (short conviction) (G41) | excess returns (D46) |
| 'best short' strategy (G11) | excess returns (D46) |
| short conviction (K40) | stock return performance (G17) |
| 'best short' strategy (G11) | performance against traditional short-selling strategies (G17) |
| short conviction (K40) | future asset price movements (G19) |