Uncovering Skilled Short-Sellers

Studies on how skilled short-sellers trade typically employ aggregate shorting volume. Unfortunately, aggregate shorting volume is polluted by shorting for hedging, long-short strategies, and liquidity supplying. Using a unique data set that tracks all short-sellers in Brazil at the deal-level, we are able to uncover the skilled short-sellers and study them in isolation. This is revealing. Skilled short-sellers are actually short-term momentum investors (as opposed to contrarian as suggested by aggregate shorting volume), a significant part of their skill comes from market-timing, they are proficient at choosing when to cover their positions and, unlike unskilled short-sellers, display no disposition effect