Short-Sellers and Short Covering

Clunie, James; Moles, Peter; Pyatigorskaya, Tatiana

Volume 13, Numbers 3 & 4 / September/December , Pages 155-321

Multinational Finance Journal, 2009, vol. 13, no. 3/4, pp. 265-292

James Clunie , Scottish Widows Investment Partnership, U.K. Corresponding Author

Peter Moles , University of Edinburgh Business School, U.K.
Tatiana Pyatigorskaya , Merrill Lynch Wealth Management, U.K.

Abstract:
This study fills an important gap in the literature on loss realization aversion. It shows how a ‘sophisticated’ sub-set of investors, namely short-sellers, react to losses. Using daily data on stock lending, we estimate the average price at which short positions were initiated, thus permitting a study of short-sellers’ responses to their own book losses. We find that short-sellers close their positions in response to losses and not simply in response to rising share prices. This is a key result and a distinction from findings in related research. We conclude that short-sellers do not exhibit an aversion to realizing losses, but instead accept their losses or ‘mistakes’ systematically.

Keywords : n/a
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