Geographic Proximity in Short Selling
Type
working paper
Date Issued
2024
Author(s)
Abstract
Micro-level geographic proximity is associated with higher returns from short selling, with short trades by institutions near the target headquarters followed by more negative abnormal returns. The relationship between distance and returns is weaker during the COVID-19 pandemic. Overlapping nearby bars and restaurants between target and short seller matter but not during holidays, suggesting social interactions as a channel. Proximity matters more for stocks that are small, volatile, and have less analyst coverage, as well as for stocks with low market correlations and inefficient prices. Funds exhibiting larger effects of proximity are smaller and have higher returns and idiosyncratic volatility.
Contact Email Address
vesa.pursiainen@gmail.com