Investing Research Articles

Do short-selling hedge funds consistently extract alpha from exuberant retail traders? In their March 2024 paper entitled “Short-Selling Hedge Funds”, Jialin Qian, Zhen Shi and Baozhong Yang examine the performance of hedge funds engaged in short-selling, as follows: Which hedge funds are likely short-sellers, and how do they compare with other hedge funds? What factors… Keep Reading

What are typical magnitude and duration of short squeezes? In their March 2012 paper entitled “Short Squeeze”, Wei Xu and Baixiao Liu investigate the dynamics and determinants of short squeezes. They cite the SEC definition: “The term ‘short squeeze’ refers to the pressure on short sellers to cover their positions as a result of sharp price increases… Keep Reading

Do short sellers who publicly attack their targets affect stock prices? How do they choose their targets? In his October 2016 paper entitled “Activist Short-Selling”, Wuyang Zhao studies short sellers who publish adverse research on and/or publicly disparage the stocks they short. To assess unique effects of the negative publicity on targeted stock prices, he compares performances of targeted… Keep Reading

We evaluate here the weekly market commentary of Price Headley, available via now-inaccessible archives for May 2000 through December 2010, and since presented as a “Weekly Market Outlook” via BigTrends.com. Price Headley, “was inducted into the Traders’ Hall of Fame in 2007 and is the founder of BigTrends.com, which provides investors with specific real-time stock… Keep Reading

…very recent data suggests that short sellers on average are contrarians who predict (or trigger?) near-term stock price underperformance. However, the underperformance is economically insignificant due to transaction and carrying costs.

Do informed (noise) traders drive short-term stock return momentum (reversal)? In their April 2018 paper entitled “Short-term Momentum”, Mamdouh Medhat and Maik Schmeling investigate interaction of short-term momentum/reversal and recent share turnover for U.S. and international stocks. They define share turnover as prior-month trading volume divided by number of shares outstanding. Specifically, they consider four portfolios: Conventional short-term reversal:… Keep Reading

…large short sellers generally know what they are doing. A rapid increase in short interest indicates abnormally low returns over the near term.

…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 trend in FTDs for NFI indicates substantial defiance of the intent of Regulation SHO, and this defiance is depressing the price of NFI stock. New FTDs most likely come from short sales three trading days in the past, implying that those most responsible for creating the FTDs are not market makers.

…unusual trading by insiders helps isolate which short sellers know what they are doing, and vice versa.