Friday, April 27, 2012

Do short sellers hold superior information, or are they simply more effective news interpreters?

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The key to long-run success in quantitative investing is innovative research on large amounts of data (Big Data). In a recent study by Dr. John Kittrell, news analytics from RavenPack and short selling data from Data Explorers are combined in order to find new ways to capture aggregate investor behavior and sentiment. Here’s a quick summary of his findings:
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News and Short Selling have Predictive Power on Both the Long and Short Side of the Market
  • Taking long/short positions based on lending data provides an annualized return of 23.8% between 2007 through 2010
  • Taking long/short positions based on news sentiment provides an annualized return of 19.5% between 2007 through 2010
  • Taking long/short positions based on news sentiment and lending data provides an annualized return of 29.5% between 2007 through 2010
 Short-Sellers Correctly Interpret Information in the News
  • In moments of media pessimism, investors select the right stocks to short. In moments of media optimism, they select the right stocks not to short
  • Combining news sentiment and short selling adds an increase in performance between 5-10% per year
 The full study can be requested here

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