Conference Agenda

Session
AP 16: Short Sales
Time:
Saturday, 19/Aug/2023:
9:30am - 11:00am

Session Chair: Adam Reed, Kenan-Flagler Business School - UNC
Location: Auditorium (floor 1)


Presentations
ID: 1854

Short Covering

Jesse Blocher1, Xi Dong2, Matthew Ringgenberg3, Pavel Savor4

1Owen Graduate School of Management, Vanderbilt University, United States of America; 2Zicklin School of Business, Baruch College - CUNY, United States of America; 3University of Utah, United States of America, United States of America; 4Driehaus College of Business, DePaul University, United States of America

Discussant: Esad Smajlbegovic (Erasmus University Rotterdam)

We construct novel measures of net and gross short covering to examine when short sellers exit positions. We find that idiosyncratic limits to arbitrage, such as adverse stock price movements, volatility, and equity lending fees, are associated with significantly higher position closures. In contrast, we find little evidence that aggregate limits to arbitrage, including VIX, funding liquidity, and market liquidity, affect short covering. Short covering predicts future returns in the wrong direction, but only if it is induced by limits to arbitrage, consistent with the hypothesis that short sellers are forced to exit too early. It is also associated with lower price efficiency, higher future anomaly returns, and better performance of other informed traders. These results show that firm-level limits to arbitrage are important determinants of trading behavior and future returns.

EFA2023_1854_AP 16_1_Short Covering.pdf


ID: 1095

Geographic Proximity in Short Selling

Xiaolin Huo1, Xin Liu1, Vesa Pursiainen2

1Renmin University of China; 2University of St.Gallen and Swiss Finance Institute

Discussant: Pedro Saffi (Cambridge University)

Micro-level geographic proximity is associated with higher returns from short selling, with short trades by institutions near the target headquarters followed by more negative abnormal returns. Proximity matters more for stocks that are small, volatile, and have less analyst coverage, as well as for stocks with low market correlations and inefficient prices. Funds exhibiting larger effect of proximity are smaller and have higher returns and idiosyncratic volatility. The relationship between distance and returns is weaker during the COVID-19 pandemic. Overlapping nearby bars and restaurants between target and short seller matter but not during holidays, suggesting social interactions as a channel.

EFA2023_1095_AP 16_2_Geographic Proximity in Short Selling.pdf


ID: 665

Anomalies and Their Short-Sale Costs

Dmitriy Muravyev2,3, Neil D. Pearson1,3, Joshua M. Pollet1

1University of Illinois at Urbana-Champaign; 2Michigan State University; 3Canadian Derivatives Institute

Discussant: Robert Kosowski (Imperial College London)

Short-sale costs eliminate the abnormal returns on asset pricing anomaly portfolios. While many anomalies persist out-of-sample, they cannot profitably be exploited due to stock borrow fees. Using a comprehensive sample of 162 anomalies, the average long-short portfolio return is a significant 0.15% per month before short-sale costs, and the returns are due to the short leg.

However, the average is −0.02% once returns are adjusted for borrow fees. The anomalies are not profitable even before accounting for fees if the high-fee observations, 12% of stock dates, are excluded from the analysis. Thus, short sale costs explain why many anomalies persist.

EFA2023_665_AP 16_3_Anomalies and Their Short-Sale Costs.pdf