Short Selling
Are there reliable paths to success in short selling? Is short selling activity a useful indicator for investors/traders? Does it mean “stay away” or “squeeze coming?” These blog entries cover the short side of the market.
Is Buying Just-delisted Stocks a Profitable Strategy? February 27, 2010
…evidence does not support a belief that “buying stocks when they begin trading OTC is a profitable strategy.”
Important News Releases for Short Sellers February 4, 2010
…evidence indicates that short sellers are on average skilled public information processors, successfully discriminating between future underperformers and outperformers, with exploitation concentrated after several categories of news releases.
Timothy Sykes: Penny Stock Pump-and-Dump Detective? January 26, 2010
…evidence from simple tests on available data supports a belief that Timothy Sykes can identify pump-and-dump patterns in real time with economically meaningful consistency, but scalability is multiply constrained such that his subscribers may not be able to mimic his trades reliably. Niche constraints may preclude exploitation by large traders, a large group of small traders and funds.
Is Phil Erlanger’s Research Exploitable? January 12, 2010
…available data is insufficient to determine whether Phil Erlanger’s Research is exploitable on a net basis. Portfolio overhead and biases in self-reported hypothetical returns could offset reported gross market outperformance for most investors.
Ways to Exploit ex-Dividend Effects? September 26, 2009
The net of this research appears to be that only very low-cost traders (such as market makers) can effectively exploit the anomaly.
Any Shorting Methods that Beat Buy-and-hold? September 10, 2009
The valuation-based method described in “Modeling the Logic of Valuation-motivated Short Sellers” is a candidate…
Aggregate Short Interest as a Stock Market Indicator August 14, 2009
…evidence from simple tests on a limited set of data offer little support a belief that changes in aggregate short interest reliably predict future stock market behavior. There is an example in the sample period of a materially disruptive single observation (Black Swan?).
Long Play When Shorts Are Away? May 26, 2009
…evidence indicates that short sellers are on average able to identify both overvalued and undervalued stocks. Investors/traders may be able to exploit the economically large positive future returns of lightly shorted stocks with simple long-only strategies.
Combining Short Interest and Analyst Recommendations October 22, 2008
…investors/traders may be able to earn significant abnormal returns by following the lead of short sellers when the short sellers disagree with expert equity analysts (short sellers know best).
The Interplay of Short Interest and Institutional Ownership March 17, 2008
…short sellers have acted as specialized monitors who tend to know what they are doing, but high levels of and large positive changes in institutional ownership can obscure short interest informativeness.
Implications of Short Selling with No Tick Test November 5, 2007
…removal of the tick test for short selling apparently: (1) mitigates overvaluation of stocks; (2) leads to temporary undervaluation of easily borrowed stocks; and, (3) disrupts trading systems that rely on dispersion of analyst earnings forecasts.
Concentrating the Superior Knowledge of Short Sellers October 9, 2007
…investors can concentrate the informed signals of short sellers by locating stocks with high short interest and low institutional ownership, and an increasing ratio of short interest to institutional ownership.
The Logic of Valuation-motivated Short Sellers August 27, 2007
…fundamental analysis (especially accrual-related indication of poor earnings quality) helps valuation-motivated short sellers identify stocks likely to experience reversal of strong past returns.
Using Insider Trading to Find Informed Short Sellers August 21, 2007
…unusual trading by insiders helps isolate which short sellers know what they are doing, and vice versa.
Shark Attacks? March 23, 2007
…it appears that some short selling is manipulative, seeking to scare other traders out of their holdings during sharp but temporary engineered price drops.


