Journal
JOURNAL OF FINANCIAL ECONOMICS
Volume 61, Issue 1, Pages 77-106Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/S0304-405X(01)00056-3
Keywords
short-sellers; fundamental analysis; trading strategies
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Firms with low ratios of fundamentals (such as earning and book values) to market values are known to have systematically lower future stock returns. We document that short-sellers position themselves in the stock of such firms, and then cover their positions as the ratios mean-revert. We also show that short-sellers refine their trading strategies to minimize transactions costs and maximize their investment returns. Our evidence is consistent with short-sellers using information in these ratios to take positions in stocks with lower expected future returns. (C) 2001 Elsevier Science S.A. All rights reserved.
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