NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Qingyi F. Drechsler

Wharton Research Data Services
Wharton School
University of Pennsylvania
3819 Chestnut Street Suite 300A
Philadelphia PA 19104

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Institutional Affiliation: Wharton Research Data Services

NBER Working Papers and Publications

July 2014The Shorting Premium and Asset Pricing Anomalies
with Itamar Drechsler: w20282
Short-rebate fees are a strong predictor of the cross-section of stock returns, both gross and net of fees. We document a large "shorting premium": the cheap-minus-expensive-to-short (CME) portfolio of stocks has a monthly average gross return of 1.43%, a net return of 0.91%, and a 1.53% four-factor alpha. We show that short fees interact strongly with the returns to eight of the largest and most well-known cross-sectional anomalies. The anomalies effectively disappear within the 80% of stocks that have low short fees, but are greatly amplified among those with high fees. We propose a joint explanation for these findings: the shorting premium is compensation for the concentrated short risk borne by the small fraction of investors who do most shorting. Because it is on the short side, it r...
 
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