Do shorting flows predict negative stock returns? Evidence from the U.S. markets
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School of Business |
Bachelor's thesis
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Date
2021
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Degree programme
Rahoitus
Language
en
Pages
21
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Abstract
This thesis examines the relation between daily shorting flows and future stock returns. The results show that shorting flows continue to predict negative future stock returns during 2010-2019 when daily short sale volumes are publicly available in real-time. The predictive ability of shorting flows weakens slowly and lasts for a year. This indicates that short sellers are informed, and market prices are slow to reflect the public shorting information. A comparison with years 2016-2019 shows that the predictability of shorting flows is relatively weaker during this sample period than 2010-2019. During 2016-2019, the predictive ability of shorting flows lasts for a year only for equal-weighted portfolios. For value-weighted portfolios, shorting flows predict negative future stock returns a maximum of three months and even then, the predictability is hardly significant. These results suggests that during 2016-2019, the predictive ability of shorting flows is much weaker and shorter term for larger companies.Description
Thesis advisor
Joenväärä, JuhaKeywords
short sales, stock returns, market efficiency, public disclosure