Short Selling Strategies, Risks, and Rewards

by Fabozzi, Frank J.; Asness, Cliff

• ISBN13: 9780471660200
• ISBN10: 0471660205
• Edition: 1st
• Format: Hardcover
• Copyright: 2004-10-04
• Publisher: Wiley

Summary

The latest theoretical and empirical evidence on short selling in the United States and throughout the world To get the most success out of what the finance community regards as a risky business, short sellers need high-level information. The Theory and Practice of Short Selling offers managers and investors the information they need to maximize and enhance their short selling capabilities for bigger profits. Frank Fabozzi collects a group of market experts who share their knowledge on everything from the basics to the complex in the world of short sales, including mechanics of short selling, the empirical evidence on short-selling, the implications or restrictions on short selling for investment strategies, short-selling strategies pursued by institutional investors, and identifying short-selling candidates. Frank J. Fabozzi, PhD, CFA (New Hope, PA), is the Frederick Frank Adjunct Professor of Finance at Yale University's School of Management and Editor of the Journal of Portfolio Management. He is the author or editor of over 100 books on finance and investing.

Author Biography

FRANK J. FABOZZI, PhD, CFA, is the Frederick Frank Adjunct Professor of Finance at Yale University’s School of Management and Editor of the Journal of Portfolio Management. Frank is a Chartered Financial Analyst and Certified Public Accountant who has authored and edited many acclaimed books in finance. He earned a doctorate in economics from the City University of New York in 1972. He is a Fellow of the International Center for Finance at Yale University.

Table of Contents

Foreword	ix
Clifford S. Asness
Preface	xiv
About the Editor	xv
Contributing Authors	xvi
CHAPTER 1 Introduction	1	(6)
Frank J. Fabozzi, Steven L. Jones, and Glen Larsen
SECTION ONE The Mechanics of Short Selling	7	(52)
CHAPTER 2 Mechanics of the Equity Lending Market	9	(8)
Jeff Cohen, David Haushalter, and Adam V. Reed
The Lending Process	10	(1)
Lenders	11	(2)
Borrowers	13	(2)
The Determinants of Rebate Rates	15	(1)
Conclusion	16	(1)
CHAPTER 3 Shorting Using Futures and Options	17	(20)
Frank J. Fabozzi
Futures Contracts	17	(13)
Equity Options	30	(6)
Summary	36	(1)
CHAPTER 4 Is Selling ETFs Short a Financial "Extreme Sport"?	37	(22)
Gary L. Gastineau
What Are the Most Important Safety Features Protecting ETF Short Sellers?	38	(1)
How Do ETFs Work in Risk Management Applications?	39	(4)
Who Owns ETF Shares?	43	(4)
Will It Always Be Possible to Borrow ETF Shares at Low-Cost for Risk Management Applications?	47	(2)
What Is the Effect of Short Selling and Risk Management Activity on ETF Trading Volume and Trading Costs?	49	(2)
Are Risk Management Applications and Heavy ETF Share Trading Desirable for Fund Shareholders and Fund Advisors?	51	(1)
What Is the Significance of the Short Interest for Growth in ETF Assets?	52	(4)
Conclusion	56	(3)
SECTION TWO Theory and Evidence on Short Selling	59	(198)
CHAPTER 5 Restrictions on Short Selling and Exploitable Opportunities for Investors	61	(56)
Edward M. Miller
Demand and Supply Curves Arguments	62	(13)
The Pattern of Stock Prices Over Time with Uninformed Investors	75	(16)
The Bounded Efficient Markets Hypothesis	91	(23)
Conclusions	114	(3)
CHAPTER 6 Implications of Short Selling and Divergence of Opinion for Investment Strategy	117	(62)
Edward M. Miller
Interaction of Divergence of Opinion and Short Selling Restrictions	119	(15)
Empirical Tests	134	(42)
Conclusions	176	(3)
CHAPTER 7 Short Sale Constraints and Overpricing	179	(26)
Owen A. Lamont
Short Sale Constrains	180	(4)
The Overpricing Hypothesis	184	(4)
Costs of Shorting	188	(3)
Go Down Fighting	191	(2)
3Com/Palm	193	(7)
Tech Stock Mania and Short Sale Constraints	200	(3)
Summary	203	(2)
CHAPTER 8 How Short Selling Expands the Investment Opportunity Set and Improves Upon Potential Portfolio Efficiency	205	(28)
Steven L. Jones and Glen Larsen
Short Selling in Efficient Portfolios: The Theory and Its Practical Implications	207	(22)
The Empirical Evidence on Short Positions in Ex Post Efficient Portfolios	229	(2)
Concluding Remarks and Practical Implications for Investors	231	(2)
CHAPTER 9 The Information Content of Short Sales	233	(24)
Steven L. Jones and Glen Larsen
Short Sales: Reporting, Frequency, and Constraints	235	(1)
Academic Theory versus the Technical Analyst's View	236	(3)
The Empirical Evidence	239	(14)
Conclusions and Implications for Investors	253	(4)
SECTION THREE Short Selling Strategies	257	(64)
CHAPTER 10 Spotting Clues in Qs	259	(20)
Ron Gutfleish and Lee Atzil
Looking for the Easier Fight	260	(1)
Putting on the Green Eyeshades	261	(4)
So What? It's Only Accounting	265	(1)
How Do You Find these Cases?	266	(4)
Diagnosis	270	(1)
Keeping Your Shorts On	270	(1)
Tales from the Front Lines: Three Examples	271	(7)
Summary	278	(1)
CHAPTER 11 The Economic Profit Approach to Short Selling	279	(24)
James A. Abate and James L. Grant
Short Selling in the Theory of Finance	280	(1)
Tenets of Good and Bad Companies	280	(1)
Positive NPV: Discovery of Good Companies	281	(3)
Negative NPV: Discovery of Bad Companies	284	(3)
Zero NPV: Wealth Neutral Companies	287	(1)
Case Studies	287	(4)
Role of the Value/Capital Ratio	291	(1)
Invested Capital Growth	292	(2)
Managerial and Investor Implications	294	(1)
Matrix of Good and Bad Companies	295	(3)
Reconciling Market Implied Growth	298	(3)
Summary	301	(2)
CHAPTER 12 Long-Short Equity Portfolios	303	(18)
Bruce I. Jacobs and Kenneth N. Levy
Constructing a Market Neutral Portfolio	304	(4)
The Importance of Integrated Optimization	308	(4)
Adding Back a Market Return	312	(4)
Some Concerns Addressed	316	(2)
Evaluating Long-Short	318	(3)
SECTION FOUR Short Selling and Market Efficiency	321	(74)
CHAPTER 13 Short Sales in Global Perspective	323	(22)
Arturo Bris, William N. Goetzmann, and Ning Zhu
Short Sales Restrictions Around the World	325	(6)
Foreign Listing and Short Selling	331	(8)
Short Selling Constraints and International Capital Flows	339	(3)
Conclusion	342	(3)
CHAPTER 14 Short Selling and Financial Puzzles	345	(50)
Edward M. Miller
Divergence of Opinion and Risk	346	(9)
Returns to Beta	355	(19)
Implications for Value Additivity	374	(19)
Conclusions	393	(2)
INDEX	395