Patel, Harihar and Guidi, Francesco ORCID: https://orcid.org/0000-0002-2682-189X (2025) Short sale and stock returns: the case of market efficiency and arbitrage in Nasdaq and NYSE listed companies. [Working Paper]

Preview

PDF (Working Paper) 50309 GUIDI_Short_Sale_And_Stock_Returns_(WORKING PAPER)_2025.pdf - Accepted Version Available under License Creative Commons Attribution Non-commercial No Derivatives. Download (1MB) | Preview

Abstract

We create portfolios of lightly shorted and heavily shorted stocks to test for monthly abnormal returns by using the Fama and French Three Factor Model with Momentum as well as the Fama and French Five Factor Model. We test this long-short strategy as a means of testing for market efficiency. We find that heavily shorted portfolios have lower abnormal returns in comparison to lightly shorted portfolios. Furthermore, we demonstrate that a trading strategy that goes long on lightly shorted stocks and short on heavily shorted stocks generates abnormal returns that are lower in comparison to a strategy that encompasses going long on lightly shorted stocks only. It is worth noting that it is difficult to compare long only portfolios with long-short portfolios due to the short component borrowing costs which often change on a day-to-day basis. However, even accounting for marginal borrowing costs, our results show that the long-short portfolios vastly underperform long only portfolios.

Item Type:	Working Paper
Uncontrolled Keywords:	short selling, short interest, portfolio strategy, arbitrage
Subjects:	H Social Sciences > H Social Sciences (General) H Social Sciences > HF Commerce H Social Sciences > HF Commerce > HF5601 Accounting
Faculty / School / Research Centre / Research Group:	Greenwich Business School Greenwich Business School > Political Economy, Governance, Finance and Accountability (PEGFA) Journal of Economic Literature Classification > Political Economy, Governance, Finance and Accountability (PEGFA) Greenwich Business School > School of Accounting, Finance and Economics
Last Modified:	12 May 2025 08:19
URI:	http://gala.gre.ac.uk/id/eprint/50309

Actions (login required)

View Item

Downloads