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Short Interest and Stock Returns

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Author Info

  • Paul Asquith
  • Parag A. Pathak
  • Jay R. Ritter

Abstract

Using a longer time period and both NYSE-Amex and Nasdaq stocks, this paper examines short interest and stock returns in more detail than any previous study and finds that many documented patterns are not robust. While equally weighted high short interest portfolios generally underperform, value weighted portfolios do not. In addition, there is a negative correlation between market returns and short interest over our whole period. Finally, inferences from short time periods, such as 1988-1994 when the underperformance of high short interest stocks was exceptional or 1995-2002, when high short interest Nasdaq stocks did not underperform, are misleading.

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File URL: http://www.nber.org/papers/w10434.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10434.

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Date of creation: Apr 2004
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Publication status: published as Asquith, Paul, Parag A. Pathak and Jay R. Ritter. "Short Interest, Institutional Ownership, And Stock Returns," Journal of Financial Economics, 2005, v78(2,Nov), 243-276.
Handle: RePEc:nbr:nberwo:10434

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References

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  1. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  2. Owen A. Lamont & Jeremy C. Stein, 2004. "Aggregate Short Interest and Market Valuations," NBER Working Papers 10218, National Bureau of Economic Research, Inc.
  3. Jones, Charles M. & Lamont, Owen A., 2002. "Short-sale constraints and stock returns," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 207-239.
  4. Geczy, Christopher C. & Musto, David K. & Reed, Adam V., 2002. "Stocks are special too: an analysis of the equity lending market," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 241-269.
  5. Figlewski, Stephen & Webb, Gwendolyn P, 1993. " Options, Short Sales, and Market Completeness," Journal of Finance, American Finance Association, vol. 48(2), pages 761-77, June.
  6. Markus K. Brunnermeier & Stefan Nagel, 2004. "Hedge Funds and the Technology Bubble," Journal of Finance, American Finance Association, vol. 59(5), pages 2013-2040, October.
  7. Dechow, Patricia M. & Hutton, Amy P. & Meulbroek, Lisa & Sloan, Richard G., 2001. "Short-sellers, fundamental analysis, and stock returns," Journal of Financial Economics, Elsevier, vol. 61(1), pages 77-106, July.
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Cited by:
  1. John Conlon, 2005. "Should Central Banks Burst Bubbles?," Game Theory and Information 0508007, EconWPA.
  2. Deqing Diane Li & Kenneth Yung, 2004. "Short Interests in Real Estate Investment Trusts," International Real Estate Review, Asian Real Estate Society, vol. 7(1), pages 56-70.
  3. John R. Conlon, 2008. "Should Central Banks Burst Bubbles? Some Microeconomic Issues," Levine's Working Paper Archive 122247000000002330, David K. Levine.

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