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Costly Long‐Short Strategies Under Short‐Sale Constraints: Chinese Evidence
Author(s) -
Lu Timothy Jun,
Ren Jinjuan,
Zhao Yan
Publication year - 2018
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12160
Subject(s) - constraint (computer aided design) , short interest ratio , scope (computer science) , business , economics , momentum (technical analysis) , value (mathematics) , financial economics , econometrics , monetary economics , microeconomics , computer science , mathematics , paleontology , context (archaeology) , geometry , machine learning , biology , programming language
Long‐short portfolios based on market anomalies are subject to ubiquitous short‐sale constraints. Few studies directly quantify the impact of shorting on long‐short strategies, largely due to the complexity of the shorting practice. We examine the Chinese market, in which the scope of the short‐sale constraint and the shorting cost are clearly specified. Among size, value, and momentum strategies, we find that only size earns significant profits before short‐sale constraints are considered. Imposing the scope of short‐sale constraint by selling only shortable stocks does not materially change the profits. Deducting shorting costs, however, essentially wipes off all the profits of long‐short portfolios.