Arbitrage Trading: The Long and the Short of It

• 成果类型: Article
• 署名作者: Chen, Yong; Da, Zhi; Huang, Dayong
• 署名单位: Texas A&M University System; Texas A&M University College Station; University of Notre Dame; University of North Carolina; University of North Carolina Greensboro
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhy097
• 发表日期: 2019
• 页码: 1608
• 关键词: cross-section; RISK; LIMITS; investors; returns; GROWTH; smart

摘要

We examine net arbitrage trading (NAT) measured by the difference between quarterly abnormal hedge fund holdings and abnormal short interest. NAT strongly predicts stock returns in the cross-section. Across ten well-known stock anomalies, abnormal returns are realized only among stocks experiencing large NAT. Exploiting Regulation SHO, which facilitated short selling for a random group of stocks, we present causal evidence that NAT has stronger return predictability among stocks facing greater limits to arbitrage. We also find large returns for anomalies that arbitrageurs chose to exploit despite capital constraints during the 2007-09 financial crisis. We confirm our findings using daily data.