The Profits and Losses of Short Sellers
UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Discipline Group
Research Seminars in Finance
Topic: The Profits and Losses of Short Sellers
Speaker: Juan Sotes-Paladino, Melbourne University
Abstract:
We use a novel dataset containing information on the distribution of the profits and losses experienced by short sellers on a large cross-section of U.S. stocks. Short sellers experience losses on average, consistent with the positive equity risk premium in our sample. However, there is a wide dispersion in profits and losses even within a stock, reflecting differences in timing ability. This dispersion translates to the cross-section, where short sellers as a group make profits on heavily-shorted stocks and on small, hard-to-borrow stocks. As if constrained by margin requirements, short sellers experiencing losses in excess of 15% substantially reduce their positions. The predictive power of short interest for future returns is weaker when a larger fraction of short sellers experiences losses, in line with these short sellers being less informed. We conclude that even though short sellers are affected by constraints, limits to arbitrage are mitigated as the constraints apply predominantly to the uninformed.
Date: Wednesday, 19th September 2018
Time: 12.00 – 1.00 p.m.
Venue: University of Technology, Sydney
Building 8, Room 8.002, Dr Chau Chak Wing Building
Dr Chau Chak Wing Building
Dr Chau Chak Wing Building
14 - 28 Ultimo Road, Ultimo
Enquiries: Mala Kapahi (Ph: +61 2 9514 7777)
