Reading the section on dedicated short bias made me want to join a hedge fund that does only short-only positions.
The personality of a typical short-seller is also rather interesting : It is usually someone who is antisocial, with a chip on his shoulder, and twisted sense of humour. Short sellers also don’t agree with each other. Short sellers are also notorious frugal and successful traders do not adopt the trappings of a successful financial professional.
I have written other articles on short selling, so I will only illustrate in a novel way why short-sellers are often right about markets overestimating a stock price if short sellers face more frictions than investors who go long in stocks.
Short sale frictions means that companies are overvalued.
The example below illustrates how shutting off short-sellers can generate speculative bubbles.
Imagine that there are two types of investors :
- Type A believe that …