TY - JOUR
T1 - Common short selling and excess comovement
T2 - Evidence from a sample of LSE stocks
AU - Geraci, Marco Valerio
AU - Gnabo, Jean Yves
AU - Veredas, David
N1 - Publisher Copyright:
© 2023 Elsevier B.V.
PY - 2023/9
Y1 - 2023/9
N2 - For a sample of 356 LSE stocks from the period 2013–2019, we find that common short sold capital is positively and significantly associated with one-month ahead four-factor residual return correlation, controlling for many pair characteristics, including similarities in size, book-to-market, and momentum. The relation weakens with stock illiquidity, whereas it strengthens when short positions originate from informed agents, such as hedge funds, active investors, and short sellers with high past performance. This supports our hypothesis that the relation is driven by information, not price pressure. We show that these results can be used to obtain diversification benefits.
AB - For a sample of 356 LSE stocks from the period 2013–2019, we find that common short sold capital is positively and significantly associated with one-month ahead four-factor residual return correlation, controlling for many pair characteristics, including similarities in size, book-to-market, and momentum. The relation weakens with stock illiquidity, whereas it strengthens when short positions originate from informed agents, such as hedge funds, active investors, and short sellers with high past performance. This supports our hypothesis that the relation is driven by information, not price pressure. We show that these results can be used to obtain diversification benefits.
KW - Comovement
KW - Hedge funds
KW - Short selling
UR - http://www.scopus.com/inward/record.url?scp=85159887733&partnerID=8YFLogxK
U2 - 10.1016/j.finmar.2023.100833
DO - 10.1016/j.finmar.2023.100833
M3 - Article
AN - SCOPUS:85159887733
SN - 1386-4181
VL - 65
JO - Journal of Financial Markets
JF - Journal of Financial Markets
M1 - 100833
ER -