Monday, December 18, 2017

Short Sellers Herding Together and What It Means

From Alpha Architect:

Academic Research Insight: Industry Herding by Short Sellers Signals that Conditions are Changing
Do short sellers exploit industry information?
  • Zsuzsa R. Huszár, Ruth S.K. Tan, Weina Zhang
  • Journal of Empirical Finance
  • A version of this paper can be found here
  • Want to read our summaries of academic finance papers? Check out our Academic Research Insight category
What are the research questions?
  1. Does the industry concentration exhibited in short sellers’ holdings convey new material information about the industry?
  2. Are the excess returns obtained from industry shorting combined with firm-specific shorting strategies explained by risk?
  3. Is the industry shorting signal correlated with economic trends in the associated industry?
What are the Academic Insights?
  1. YES. The results reported here are consistent with previous studies. Heavily shorted industries consist of larger stocks with low transactions costs and larger book-to-market ratios with higher dispersion. Short sellers also focus on industries that are less concentrated with fewer dominant firms, but firms with greater informational complexity....
...MORE, including the answers to queries 1 & 2 and why it matters