Are Regulatory Short Sale Data a Profitable Predictor of UK Stock Returns?

Abstract

Regulator-required public disclosures of net short positions do not provide a profitable investment signal for UK stocks across a variety of portfolio formation methodologies. While long-short (zero initial outlay) portfolios based on this signal usually make a profit on average, it is rarely statistically significant in either gross or risk-adjusted terms. The issue is that the short sides of the portfolios make substantial losses. Unit initial outlay portfolios based on the disclosures do not generally significantly outperform the market, either. Where they do significantly outperform the market, this outperformance is economically modest.