Thursday and Friday I attended the NBER Asset Pricing conference. As usual it was full of interesting papers and sharp discussion. Program here.
A bloggable insight: Itamar Drechsler, and Qingyi F. Drechsler "The Shorting Premium and Asset Pricing Anomalies." They carefully found the cost to short-sell stocks.
Here's their Table 5. F0 are all the easy to short stocks. F3 are the hardest to short stocks. They construct long-short anomaly portfolios in each group. "F 0 Mom" for example is the average monthly return of past winners minus that of past losers, among the easy to short stocks. Now compare the F0 row to the F3 row. The anomaly returns only work in the hard-to-short portfolios.
The second panel shows Fama-French alphas, which are better measured. The sample is alas small. But the result is cool.
The implication is that a lot of anomalies exist only in hard to trade stocks. There is a lot more in the paper, of course.
Table 5: Anomaly Returns Conditional on Shorting Fees
We divide the short-fee deciles from Table 2 into four buckets. Deciles 1-8, the low-fee stocks, are
placed into the F0 bucket. Deciles 9 and 10, the intermediate- and high-fee stocks, are divided
into three equal-sized buckets, F1 to F3, based on shorting fee, with F3 containing the highest
fee stocks. We then sort the stocks within each bucket into portfolios based on the anomaly
characteristic and let the bucket's long-short anomaly return be given by the di erence between
the returns of the extreme portfolios. Due to the larger number of stocks in the F0 bucket, we sort it into deciles based on the anomaly characteristic, while F1 to F3 are sorted into terciles. Panel A
reports the monthly anomaly long-short returns for each anomaly and bucket. Panel B reports the
corresponding FF4 alphas. Panel C reports the FF4 + CME alphas. The sample period is January
2004 to December 2013.
(From Table 4 caption) The anomalies are: value-growth (B=M), momentum (mom), idiosyncratic
volatility (ivol), composite equity issuance (cei), nancial distress (distress), max return (maxret),
net share issuance (nsi), and gross pro tability (gprof). The sample is January 2004 to December