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Coordinated Retail Traders Won the War with Short Sellers?

April 30, 2024 • Posted in Investing Expertise, Mutual/Hedge Funds, Short Selling

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:

  1. Which hedge funds are likely short-sellers, and how do they compare with other hedge funds?
  2. What factors contribute to the performance of short-selling hedge funds?
  3. How has the 2021 Meme stock phenomenon affected short-selling hedge funds?

They each month identify short-selling hedge funds as those with positive return betas over the past 24 months versus a monthly rebalanced portfolio of short stock positions with weights proportional to their respective short interests. They relate behaviors of short-selling funds to those of other hedge funds and to those of retail traders. Using monthly data for 11,054 U.S. hedge funds, returns and short interests for a broad sample of U.S. stocks and data to measure retail stock trading/sentiment during 2010 through 2022, they find that: (more…)

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