This article studies how short-sale constraints affect price efficiency in Brazilian stocks. The study uses a data set with all equity loan deals done in Brazil between January 2009 and July 2011. The main findings are the mapping of efficiency stock characteristics (i.e. stocks with more liquidity, larger size and greater book-to-market); an evidence of efficiency risk premium paid for investors that keep price-inefficient stocks in their portfolio; a positive relation between short selling and price efficiency and the event study of tax arbitrage, where it\'s possible to check that price inefficiency is positively related to short selling during the payment of interest on net equity. / Esta dissertação estuda os impactos da restrição à venda a descoberto na eficiência de preço dos ativos negociados em bolsa. O estudo utiliza uma base de dados com todos os negócios de aluguel de ação realizados no Brasil entre janeiro de 2009 e julho de 2011, bem como séries de preços em alta e baixa frequência para o cálculo dos índices de eficiência de preço. As principais descobertas incluem o mapeamento das características de ações eficientes (mais líquidas, empresas maiores e maior book-to-market); a evidência de um prêmio de risco a ser pago ao investidor que mantém ações menos eficientes em sua carteira; a relação positiva entre eficiência de preço e venda a descoberto e o estudo de caso da \"barriga de aluguel\", onde verifica-se, pelo aumento da restrição às operações de venda a descoberto, um aumento da ineficiência de preço ao redor de datas de pagamento de juros sobre o capital próprio.

This working paper discusses in its first section differences between active and passive investment strategies. It also deals with convenience of active funds by overcoming returns of indices size of fees and share of assets in active and passive investment forms. It also discusses index investing and exchange traded funds. The second chapter deals with short selling, its history, regulation, fees and criteria for short selling. Last chapter analyzed financial indicators of stock titles from DSW Watchlist. The results of the analysis have been also tested. Results are shown in the third chapter itself and relevant annexes.

The literature on short selling documents substantial evidence that short sellers are generally informed investors (e.g., Diamond and Verrecchia, 1987; Asquith and Muelbrook, 1996). This dissertation investigates three specific implications of informed short selling for a firm and its investors. The first essay investigates if short selling discourages managers from pursuing over-optimistic projects by reducing equity market timing. By conditioning short selling on firm overvaluation, this essay shows that short selling reduces managerial equity market timing and increases leverage. This moderating impact of short selling is more pronounced in smaller firms and those with low institutional ownership or higher intangible assets. Furthermore, the results show that board independence facilitates the above effect of short selling which helps protect shareholder interests. The second essay investigates if board independence reduces informed short selling prior to earnings announcements. This essay estimates short sellers’ correct prediction of the direction of unexpected quarterly earnings through Logistic regression and finds that short sellers’ correct prediction decreases in firms with independent boards relative to firms with non-independent boards. Furthermore, this effect is more pronounced in firms with CEO duality and large board size. The quasi-natural experiment using the exogenous shock to board independence from the Sarbanes-Oxley Act of 2002, provides further support to our hypotheses. The third essay provides Sell recommendations by examining pre-announcement short selling of firms ahead of their earnings announcements. The methodology makes Sell recommendations for firms with the highest short position prior to their quarterly earnings announcement. The post-announcement raw, excess, and abnormal returns of firms having the Sell recommendations are statistically and economically significant for multiple-holding periods showing the methodology’s significant trading strategy implication. This dissertation significantly contributes to short selling, governance, capital structure, and investment literature.

<p>Stock lending is primarily a professional activity. The supply of stocks in the lending market comes mainly from pension funds and insurance companies, while intermediaries provide valuable services by taking positions as borrowers as well as lenders. Borrowers use stock lending for various reasons. For instance, hedge funds usually borrow stocks to cover a short position. There has been a lot of controversy in the stock lending industry and the debate has mainly concerned its effects for the stock markets. The objective of this thesis is to describe the Swedish stock lending market by analyzing the historical development from 1995 to 2006. Securities lending has increased enormously in recent years and our aim is to explore what has contributed to this positive development by describing the different perspectives in the stock lending market – lender, borrower, intermediary and the Swedish Securities Dealers Association. Our conclusion is that the number of stocks on loan per week is showing a 977 percent growth between 1995 and 2006. The correlation between the number of shares on loan and its market value is highly positive during the period of study, except for 2002. The stock lending market is a legitimate investment activity which plays an important role in supporting efficient markets. According to our data stock lending supports hedging activities, accelerates price corrections in overvalued stocks and facilitates liquidity in capital markets.</p>

Stock lending is primarily a professional activity. The supply of stocks in the lending market comes mainly from pension funds and insurance companies, while intermediaries provide valuable services by taking positions as borrowers as well as lenders. Borrowers use stock lending for various reasons. For instance, hedge funds usually borrow stocks to cover a short position. There has been a lot of controversy in the stock lending industry and the debate has mainly concerned its effects for the stock markets. The objective of this thesis is to describe the Swedish stock lending market by analyzing the historical development from 1995 to 2006. Securities lending has increased enormously in recent years and our aim is to explore what has contributed to this positive development by describing the different perspectives in the stock lending market – lender, borrower, intermediary and the Swedish Securities Dealers Association. Our conclusion is that the number of stocks on loan per week is showing a 977 percent growth between 1995 and 2006. The correlation between the number of shares on loan and its market value is highly positive during the period of study, except for 2002. The stock lending market is a legitimate investment activity which plays an important role in supporting efficient markets. According to our data stock lending supports hedging activities, accelerates price corrections in overvalued stocks and facilitates liquidity in capital markets.

This paper seeks to fill a gap in the literature regarding the consequences of banning ‘naked’ Credit Default Swaps (CDS). In particular, I use the European Union’s Ban on ‘naked” Sovereign CDS as an event study to evaluate the impact that banning such derivative products has on the price discovery process in the credit markets. Using both Granger Causality tests and a Vector Error Correction Model, I find that before November 1, 2012, CDS are the clear price leader in the credit markets. However, since the official date the regulation was put into effect, CDS’ price leadership was eroded. Moreover, after the ban, CDS and Bond Yield Spreads are no longer cointegrated in the long run, suggesting that different pricing mechanisms now exist between the two securities

<p>Background:</p><p>Hedge funds have its origin in 1949 when Alfred W Jones constructed a fund that used a new technique where he took long positions and hedged them with short positions. This fund got a large publicity when it was proved that it had outperformed any other fund by 87 percent during a ten year period. Though, it was not until the early 1990’s hedge funds became popular for the general public. The goal for hedge funds in general is to yield an absolute return and there are many different strategies for reaching this goal. This has lead to the following three research questions:</p><p>Have Hedge funds been able to reach its goal for an absolute return in both bullish and bearish times?</p><p>Which strategy has shown the best performance in markets on the rise and in declining markets and is it possible to place the different strategies in order of precedence?</p><p>Is it possible to come up with a guideline for investing in hedge funds on the Swedish market?</p><p>Purpose:</p><p>The purpose with this thesis is to study the returns on a large number of hedge funds in the American fund market based upon their investment strategy, both when the market is gaining and when it is declining.</p><p>Method:</p><p>In this thesis we have investigated twelve different strategies in the American market. By using secondary data from HFRI’s hedge fund database we have conducted a quantitative research by calculating key statistics for the strategies. We have also plotted performance diagrams were the strategies are compared with S&P 500. To be able to answer our research questions we constructed a table containing a summary of the risk and return for the strategies in bullish and bearish market times.</p><p>Results:</p><p>Our research showed that there were two strategies that were capable of delivering an absolute return for the entire period. However, when looking deeper into the yearly returns we found that there were another eight strategies that presented a negative return for just one out of the total eleven years. To conclude the research we have placed the strategies in order of precedence that works as a guideline for investing in the Swedish market in bull and bear markets.</p>

Background: Hedge funds have its origin in 1949 when Alfred W Jones constructed a fund that used a new technique where he took long positions and hedged them with short positions. This fund got a large publicity when it was proved that it had outperformed any other fund by 87 percent during a ten year period. Though, it was not until the early 1990’s hedge funds became popular for the general public. The goal for hedge funds in general is to yield an absolute return and there are many different strategies for reaching this goal. This has lead to the following three research questions: Have Hedge funds been able to reach its goal for an absolute return in both bullish and bearish times? Which strategy has shown the best performance in markets on the rise and in declining markets and is it possible to place the different strategies in order of precedence? Is it possible to come up with a guideline for investing in hedge funds on the Swedish market? Purpose: The purpose with this thesis is to study the returns on a large number of hedge funds in the American fund market based upon their investment strategy, both when the market is gaining and when it is declining. Method: In this thesis we have investigated twelve different strategies in the American market. By using secondary data from HFRI’s hedge fund database we have conducted a quantitative research by calculating key statistics for the strategies. We have also plotted performance diagrams were the strategies are compared with S&amp;P 500. To be able to answer our research questions we constructed a table containing a summary of the risk and return for the strategies in bullish and bearish market times. Results: Our research showed that there were two strategies that were capable of delivering an absolute return for the entire period. However, when looking deeper into the yearly returns we found that there were another eight strategies that presented a negative return for just one out of the total eleven years. To conclude the research we have placed the strategies in order of precedence that works as a guideline for investing in the Swedish market in bull and bear markets.

Submitted by Lira Rocha da Mota (liramota@gmail.com) on 2017-06-25T23:20:17Z No. of bitstreams: 1 Tese.pdf: 2641768 bytes, checksum: 9529228790bc66dfec234ca17131f8d8 (MD5) / Approved for entry into archive by GILSON ROCHA MIRANDA (gilson.miranda@fgv.br) on 2018-09-13T19:00:28Z (GMT) No. of bitstreams: 1 Tese.pdf: 2641768 bytes, checksum: 9529228790bc66dfec234ca17131f8d8 (MD5) / Made available in DSpace on 2018-09-27T13:14:10Z (GMT). No. of bitstreams: 1 Tese.pdf: 2641768 bytes, checksum: 9529228790bc66dfec234ca17131f8d8 (MD5) Previous issue date: 2016-09-19 / Essa tese é composta por três capítulos. O primeiro capítulo é dedicado a estudar o impacto causal de restrições de venda a descoberto sobre retorno de ações. A base de dados utilizada neste trabalho possui todas as transações de aluguel de ações que aconteceram no Brasil no período de Janeiro de 2007 até Junho de 2013. Uma oportunidade de arbitragem fiscal sobre o recebimento de Juros de Capital Próprio (possível até o final de 2015) gera uma variação exógena na taxa de aluguel. Os resultados mostram um aumento médio de 73% das taxas de aluguel em contratos especulativos que é exógeno às características da ação, que por sua vez, causa um retorno acumulado anormal de 0.38% nos oito dias úteis pós a data de ex-dividendo. No segundo capítulo, a mesma base de dados é utilizada para documentar que a opacidade do mercado de balcão, no qual os contratos de aluguel de ações são transacionados, gera dispersão da taxa e aluguel. Os principais resultados são 1. a medida de dispersão de preço é o melhor preditor de retornos quando comparada com medidas tradicionais na literatura relacionadas a venda descoberto: taxa de aluguel média, “short-interest” e “days to cover”; 2. uma nova versão de “short-premium” representada por um portfólio long-short formando com base na dispersão da taxa de aluguel apresenta retorno médio mensal de 1.03% acima do CDI e 0.76% alpha sobre quatro fatores. Finalmente, o terceiro capítulo desafia a prática comum na literatura de formar fatores de risco baseado em características das ações. Neste capítulo é introduzido um método para fazer previsão de covariâncias com alto poder estatístico. Usando esse método é possível construir portfólios que capturam o prêmio associado a característica, mas que faz o "hedge" de grande parte do risco associado ao fator. Quando essa metodologia é aplicada aos cinco-fatores de Fama e French (2015), é possível construir um portfólio ortogonal aos fatores com Sharpe-ratio de 0.84. / This thesis is composed by three chapters. The first chapter aims to estimate the causal impact of short-selling restrictions on returns. Taking advantage of a unique dataset that unifies all stock loan transactions in Brazil from January 2007 to June 2013, we exploit a source of exogenous variation in loan fees provided by a tax-arbitrage opportunity that existed in Brazil until end 2015. We show that exogenous relative increase in lending fees for speculative reasons is on average 73%, causing an average 0.38% cumulative abnormal return on the 8-trading days following the ex-dividend day. In the second chapter, we show that the over-the-counter (OTC) generates loan fee dispersion across loan contracts for the same stock and the same day. We find that loan fee dispersion is the best predictor of the cross-section of stock returns, when compared to traditional short-sale related measures in the literature: loan fee average, short-interest or days to cover. We document a newer version of the “short premium": the small dispersion-minus-large dispersion (sDmlD) portfolio of stocks has a monthly average excess return of 1.03% and a 0.79% four-factor alpha. Finally, in the third chapter we challenge the common practice in the literature to create factor-portfolios by sorting on stocks characteristics. We introduce a high statistical power methodology to forecast future covariances that is able to select a set of portfolios which capture the characteristic premia, but hedge out much of factor risk. We apply our methodology to the Fama and French (2015) five-factors, and construct a portfolio orthogonal to their factor with annualized Sharpe-ratio of 0.84.

This article studies how short-sale constraints affect price efficiency in Brazilian stocks. The study uses a data set with all equity loan deals done in Brazil between January 2009 and July 2011. The main findings are the mapping of efficiency stock characteristics (i.e. stocks with more liquidity, larger size and greater book-to-market); an evidence of efficiency risk premium paid for investors that keep price-inefficient stocks in their portfolio; a positive relation between short selling and price efficiency and the event study of tax arbitrage, where it\'s possible to check that price inefficiency is positively related to short selling during the payment of interest on net equity. / Esta dissertação estuda os impactos da restrição à venda a descoberto na eficiência de preço dos ativos negociados em bolsa. O estudo utiliza uma base de dados com todos os negócios de aluguel de ação realizados no Brasil entre janeiro de 2009 e julho de 2011, bem como séries de preços em alta e baixa frequência para o cálculo dos índices de eficiência de preço. As principais descobertas incluem o mapeamento das características de ações eficientes (mais líquidas, empresas maiores e maior book-to-market); a evidência de um prêmio de risco a ser pago ao investidor que mantém ações menos eficientes em sua carteira; a relação positiva entre eficiência de preço e venda a descoberto e o estudo de caso da \"barriga de aluguel\", onde verifica-se, pelo aumento da restrição às operações de venda a descoberto, um aumento da ineficiência de preço ao redor de datas de pagamento de juros sobre o capital próprio.