Short Selling and Market Anomalies

Wu, J. (Julie); Zhang, Andrew (Jianzhong)

doi:10.2139/ssrn.2440922

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Short Selling and Market Anomalies

Journal of Financial Markets, Forthcoming

55 Pages Posted: 24 May 2014 Last revised: 12 Jul 2019

See all articles by J. (Julie) Wu

Andrew (Jianzhong) Zhang

University of Nevada, Las Vegas - Department of Finance

Date Written: July 9, 2019

Abstract

We assess the importance of well-known market anomalies for shorting strategies and how it changes over the 1988-2014 period. We find that anomalies contribute to both relative short interest (RSI) and RSI’s negative information content about future earnings surprises and analyst actions. Anomalies explain more than half of the RSI-return relation. These results neither attenuate over time nor vary with market sentiment. RSI on least-shorted firms contains unique return-predictive information, which becomes increasingly important over time while RSI on most-shorted firms does not. Our findings suggest that a significant portion of short sellers’ informational advantage comes from exploiting market anomalies.

Keywords: financial information, market anomalies, short selling

JEL Classification: G12, G14

Suggested Citation: Suggested Citation

Wu, J. (Julie) and Zhang, Andrew (Jianzhong), Short Selling and Market Anomalies (July 9, 2019). Journal of Financial Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2440922 or http://dx.doi.org/10.2139/ssrn.2440922