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Short Selling: An evidence-based introduction by James Clunie

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1. Common Approaches to Short Selling

A VARIETY OF APPROACHES to speculative short-selling are possible, depending on the goals, resources and capabilities of the short-seller. Some of these approaches are commonly used in long/short portfolios; others are more suited to dedicated short-bias funds. In this section I discuss some of these approaches, and the theory and evidence supporting them.

Quantitative Approaches

There is a rich seam of research, from both the academic and practitioner communities, on so-called ‘market anomalies’ – patterns or regularities in returns that one would not expect given a belief in rational investor expectations. The use of this research is a key driver in most quantitative approaches to investing. A typical ...

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