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Short trading and short investing

Author

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  • Blocher, Jesse
  • Haslag, Peter
  • Zhang, Chi

Abstract

Short selling is measured in the literature as both constraint (e.g., lending fees) and activity (e.g., trades). We show that these two measures capture separate effects, which we characterize into two different strategies. The first strategy, “short trading,” has minimal constraints, weekly scale return predictability and average risk. The second strategy, “short investing,” has high constraints, multi-month return predictability and higher risk. Moreover, each strategy incorporates different types of information. Short trading includes short-lived information while short investing includes more long-lived, fundamental information. This diversity in short sellers has implications for both theoretical and empirical research.

Suggested Citation

  • Blocher, Jesse & Haslag, Peter & Zhang, Chi, 2020. "Short trading and short investing," Journal of Empirical Finance, Elsevier, vol. 59(C), pages 154-171.
    • Handle: RePEc:eee:empfin:v:59:y:2020:i:c:p:154-171
    DOI: 10.1016/j.jempfin.2020.09.007
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    References listed on IDEAS

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    More about this item

    Keywords

    Informed trading; Limits to arbitrage; Price efficiency; Short constraints; Short volume; Securities lending;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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