[Research Seminar 2019.01.29]A First Glimpse into the Short Side of Hedge FundsSpeaker : Jaewon Choi, Associate Professor of Finance, University of Illinois
We provide direct evidence about the profitability of hedge fund short trades in equities. We identify the opening and closing of short (and long) trades by combining data on institutional investors’ transactions and holdings. Hedge fund short sales covered within five trading days are highly profitable, but short positions kept open longer than five days are not. Additional evidence suggests that some of the profitability of short trades is due to trading on information and some stems from liquidity provision in both opening and covering trades. Short selling profitability is persistent, suggesting that hedge funds in our sample are skilled short sellers.