Seeking negative alphas through shorting

Shorting involves selling stocks that one does not own. Advocates of shorting argue that it is needed to make the financial market a two-way (complete) market in which investors with bearish opinions can participate. To gain from shorting, short sellers hope to buy back the shorted stocks at a lower...

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Main Author:	Mohamad, Azhar
Format:	Article
Language:	English English English
Published:	SAGE Journals 2017
Subjects:	HG4501 Stocks, investment, speculation
Online Access:	http://irep.iium.edu.my/58883/ http://irep.iium.edu.my/58883/ http://irep.iium.edu.my/58883/ http://irep.iium.edu.my/58883/1/GBR%20-%20Seeking%20Negative%20Alphas%20thru%20Shorting%20-%20Published%20version%20Aug%202017.pdf http://irep.iium.edu.my/58883/7/58883_Seeking%20negative%20alphas%20through%20shorting_MYRA.pdf http://irep.iium.edu.my/58883/8/58883_Seeking%20negative%20alphas%20through%20shorting_SCOPUS.pdf

id	iium-58883
recordtype	eprints
spelling	iium-588832020-01-10T10:42:16Z http://irep.iium.edu.my/58883/ Seeking negative alphas through shorting Mohamad, Azhar HG4501 Stocks, investment, speculation Shorting involves selling stocks that one does not own. Advocates of shorting argue that it is needed to make the financial market a two-way (complete) market in which investors with bearish opinions can participate. To gain from shorting, short sellers hope to buy back the shorted stocks at a lower price. Obtaining ‘negative’ alphas or abnormal returns is thus desirable for short sellers as they imply the underperformance of the stocks and that a profit has been realized. Abnormal returns, according to Fama (1998), are anomalies that tend to disappear when reasonable changes are made to the methodology used to measure them. Diamond and Verrecchia (1987), however, theorize and argue a priori that an unusually large increase in short interest will be followed by a period of negative abnormal returns. Short interest is equal to the number of shorted shares divided by the number of shares available to be shorted. Using daily short interest data for stocks traded on the London Stock Exchange for the period of September 2003 to April 2010, we employ an event study to investigate the effects that follow shorting. Alphas and abnormal returns are measured according to the Market Model (MM), the Capital Asset Pricing Model (CAPM) and the Fama–French Three-factor Model (FF3F), and are estimated using different estimation windows of 60 and 120 days. In all the methodologies under study, we find significant negative alphas following shorting. SAGE Journals 2017-08-08 Article NonPeerReviewed application/pdf en http://irep.iium.edu.my/58883/1/GBR%20-%20Seeking%20Negative%20Alphas%20thru%20Shorting%20-%20Published%20version%20Aug%202017.pdf application/pdf en http://irep.iium.edu.my/58883/7/58883_Seeking%20negative%20alphas%20through%20shorting_MYRA.pdf application/pdf en http://irep.iium.edu.my/58883/8/58883_Seeking%20negative%20alphas%20through%20shorting_SCOPUS.pdf Mohamad, Azhar (2017) Seeking negative alphas through shorting. Global Business Review, 18 (6). pp. 1488-1506. ISSN 0972-1509 E-ISSN 0973-0664 http://journals.sagepub.com/doi/full/10.1177/0972150917713035 10.1177/0972150917713035
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English English English
topic	HG4501 Stocks, investment, speculation
spellingShingle	HG4501 Stocks, investment, speculation Mohamad, Azhar Seeking negative alphas through shorting
description	Shorting involves selling stocks that one does not own. Advocates of shorting argue that it is needed to make the financial market a two-way (complete) market in which investors with bearish opinions can participate. To gain from shorting, short sellers hope to buy back the shorted stocks at a lower price. Obtaining ‘negative’ alphas or abnormal returns is thus desirable for short sellers as they imply the underperformance of the stocks and that a profit has been realized. Abnormal returns, according to Fama (1998), are anomalies that tend to disappear when reasonable changes are made to the methodology used to measure them. Diamond and Verrecchia (1987), however, theorize and argue a priori that an unusually large increase in short interest will be followed by a period of negative abnormal returns. Short interest is equal to the number of shorted shares divided by the number of shares available to be shorted. Using daily short interest data for stocks traded on the London Stock Exchange for the period of September 2003 to April 2010, we employ an event study to investigate the effects that follow shorting. Alphas and abnormal returns are measured according to the Market Model (MM), the Capital Asset Pricing Model (CAPM) and the Fama–French Three-factor Model (FF3F), and are estimated using different estimation windows of 60 and 120 days. In all the methodologies under study, we find significant negative alphas following shorting.
format	Article
author	Mohamad, Azhar
author_facet	Mohamad, Azhar
author_sort	Mohamad, Azhar
title	Seeking negative alphas through shorting
title_short	Seeking negative alphas through shorting
title_full	Seeking negative alphas through shorting
title_fullStr	Seeking negative alphas through shorting
title_full_unstemmed	Seeking negative alphas through shorting
title_sort	seeking negative alphas through shorting
publisher	SAGE Journals
publishDate	2017
url	http://irep.iium.edu.my/58883/ http://irep.iium.edu.my/58883/ http://irep.iium.edu.my/58883/ http://irep.iium.edu.my/58883/1/GBR%20-%20Seeking%20Negative%20Alphas%20thru%20Shorting%20-%20Published%20version%20Aug%202017.pdf http://irep.iium.edu.my/58883/7/58883_Seeking%20negative%20alphas%20through%20shorting_MYRA.pdf http://irep.iium.edu.my/58883/8/58883_Seeking%20negative%20alphas%20through%20shorting_SCOPUS.pdf
first_indexed	2023-09-18T21:23:20Z
last_indexed	2023-09-18T21:23:20Z
_version_	1777412027575173120

Seeking negative alphas through shorting

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