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A First Look at Mutual Funds That Use Short Sales

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  • Chen, Honghui
  • Desai, Hemang
  • Krishnamurthy, Srinivasan

Abstract

We provide a first look at short selling by mutual funds, a phenomenon not examined by prior research. Mutual funds that short do so frequently and in significant amounts, averaging about 16% of fund assets. These funds outperform benchmarks by 1.5% per year. An analysis of portfolio holdings shows that these funds generate abnormal performance from their short (4.1% per year) and long (1.5% per year) positions. Managers of short-selling mutual funds also exhibit superior performance in other funds they manage that do not use short sales. These findings suggest that managers of short-selling mutual funds are skilled.

Suggested Citation

  • Chen, Honghui & Desai, Hemang & Krishnamurthy, Srinivasan, 2013. "A First Look at Mutual Funds That Use Short Sales," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(3), pages 761-787, June.
    • Handle: RePEc:cup:jfinqa:v:48:y:2013:i:03:p:761-787_00
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