Shorting opaque signals
Name
960722729-MIT.pdf
Description
Full printable version
Size
2.47 MB
Format
Adobe PDF
Checksum (MD5)
987952733fd8187a88b4114eca92ff78
Author(s)
Guest, Nicholas M
Advisor(s)
John E. Core.
Date Issued
2016
Publisher
Massachusetts Institute of Technology
Abstract
This study uses short interest data to show that quantitative equity investors devote more capital to firm-specific arbitrage strategies in stocks with more opaque earnings. There are also higher strategy returns in stocks with opaque earnings. Together, these results suggest that quantitative investors exploit their sophistication by trading when the firm's earnings make it more costly for other market participants to understand the future implications of a signal. The result is stronger for fundamental-based strategies such as post-earnings-announcement drift than for market-based strategies such as return momentum, suggesting that arbitrageurs shift capital from market strategies to fundamental strategies when earnings are opaque. Overall, the paper highlights the role of sophisticated quantitative investors in impounding signals that are difficult to understand into prices and suggests that the opacity of a firm's fundamentals is a key determinant of sophisticated investors' trading strategies.
Description
Thesis: S.M. in Management Research, Massachusetts Institute of Technology, Sloan School of Management, 2016.
Cataloged from PDF version of thesis.
Includes bibliographical references (pages 44-47).
Subjects
Sloan School of Management.
MIT Department
Sloan School of Management
Terms of Use
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