Short Sellers' Informational Advantage and the Turn-of-the-Month Anomaly

Blau, Benjamin M.; Shkilko, Andriy

doi:10.2139/ssrn.1328057

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Short Sellers' Informational Advantage and the Turn-of-the-Month Anomaly

29 Pages Posted: 16 Jan 2009 Last revised: 6 Dec 2010

See all articles by Benjamin M. Blau

Benjamin M. Blau

Utah State University - Huntsman School of Business

Andriy Shkilko

Wilfrid Laurier University - Lazaridis School of Business and Economics

Date Written: December 3, 2010

Abstract

Prior research posits that short sellers are able to identify temporary stock price overreactions and profit by opening contrarian positions. In this study, we seek to uncover the sources of short sellers’ ability to identify overreactions. We examine short selling around the return pattern known as the turn-of-the-month anomaly that manifests itself in high returns around the turn of the calendar month followed by a correction. We find evidence consistent with the notion that short sellers exploit this anomaly and, by doing so, potentially increase the profitability of their contrarian trading strategies. Notably, active short selling does not completely arbitrage the anomaly away in the stocks with high short sale constraints. Our results shed new light on (i) the sources of short sellers’ informational advantage, (ii) the persistence of the turn-of-the-month anomaly, and (iii) the limits to arbitrage.

Keywords: short selling, return anomalies, arbitrage

JEL Classification: G14, G23

Suggested Citation: Suggested Citation

Blau, Benjamin M. and Shkilko, Andriy, Short Sellers' Informational Advantage and the Turn-of-the-Month Anomaly (December 3, 2010). Available at SSRN: https://ssrn.com/abstract=1328057 or http://dx.doi.org/10.2139/ssrn.1328057