How Should Investors View Short Sales?
Short sellers often receive negative publicity when there is a market downturn, but is this really warranted? Are short selling bans (like those that have been implemented in response to the present crisis) effective? In order to understand these questions fully, it's necessary to look a little deeper into the practice of short selling.
Within this list of papers, there are several primers on short sales and the ways that they are used by the institutional investment community, including an explication of the popular 130/30 long-short equity strategy. Others look at short selling in the context of factor investing or the securities lending market. Speaking of securities lending, be sure to check out State Street's paper on the unique ESG-related conflicts between long-term investors and short-term securities lenders.
Will short selling bans succeed in reducing market declines as a result of the COVID-19 pandemic? State Street draws lessons from academic studies on previous short-selling bans.
Can short selling practices undermine the ESG-related priorities of long-term investors? In this paper, State Street discusses this conflict, looking at issues such as short-termism and proxy voting.
For compliance reasons, this paper is only accessible in certain geographies
Franklin Templeton's Q2 Hedge Fund Strategy Outlook has a section that covers long-short equity funds, delving even deeper into L-S funds focusing on the technology sector.
The Managed Funds Association produced this primer on short selling, providing details about the regulation of short sales and the benefits that short sales provide.
This Robeco paper challenges the common assumption that factors can best be harvested by taking on both long and short positions. In their view, investors should focus on the long positions.
Scientific Beta shows how a factor overlay approach (using long-short components) can help a portfolio to close the gap between its current and its target factor allocation.
QMA describes the different routes to alpha that short-selling investors can take, examining the 3 predominant categories of shorting-enabled equity products - 130/30, market neutral, and other long short funds.
How do 130/30 strategies work? This Meketa paper describes several aspects of 130/30 long-short strategies, including their risk/return characteristics.
In this prescient blog piece, Eric Stampfel of Morgan Stanley Investment Management describes some of the risk-mitigating aspects of long short strategies, specifically focusing on market neutral funds.
How have advancements in technology (including IR 4.0 disruptions) affected the securities lending market? This report describes potential changes in each stage of the securities lending life cycle.
The International Securities Lending Association provides this helpful guide about securities lending, including information about short selling rules and the functions of short sales.