Monthly Market Monitor
February 2025
In a Nutshell
Our view on the markets
Trump gets down to work with verve
Donald Trump has started his second term in office at a fast pace. On his very first day back in the Oval Office, he issued dozens of executive orders and made good on some of his election campaign promises with regard to, for example, immigration policy and rolling back the Biden administration’s decarbonization strategy. In addition, true to the motto “Make America Even Greater,” the US president unveiled a USD 500 billion artificial intelligence investment initiative called “Stargate.” Trump has also made good on his threats with regard to punitive tariffs and has so far targeted Canada, Mexico and China.
Good start to new year
Equity markets around the world began the new year with upward momentum, with the S&P 500 and Euro Stoxx 50 indices both climbing to new all-time highs in January. Although stock prices retreated only marginally at around the turn of the year, investor sentiment has cooled noticeably. This means that there are enough
potential buyers back on the sidelines at the moment who could jump in again and drive share prices even higher. The corporate earnings trend will likely be a key co-determinant of the relative performance of regions in 2025. The bars, though, are set relatively high, particularly for Europe. The roughly 10% earnings expansion expected could prove to be overly optimistic.
Short selling: An investment strategy with an image problem
Short sellers are a peculiar species among the many actors on financial markets. Their actions require not just a lot of capital, loads of detective work, and plenty of staying power, but also necessitate good risk management practices and a dose of courage. Short sellers are beloved by few, but they perform an important control and corrective function on markets. Over the course of the ongoing bull market in recent years, more and more hedge funds have pulled out of this tough business. Individual private investors should bet neither along with nor against short sellers. However, possessing knowledge about this investment strategy with an image problem can be helpful for a private asset portfolio.
The upcoming German Bundestag elections will enter the home stretch in the days ahead. Investors and businesses are hoping for a quick end to the political vacuum in Berlin, which has come into existence at the worst imaginable global moment in view of the multifarious geopolitical challenges and an unpredictable new-old US president. Europe needs a strong Germany to keep from getting left in the dust in global competition by the USA and China. It is very probable that there will be a political shift to a new government led by the conservative CDU/CSU with Friedrich Merz as the federal chancellor. What’s less certain, though, is whether the pressure on the “sick man of Europe” (version 2.0) is already intense enough to prompt an enactment of the reforms needed in order for Germany to stage a comeback as a growth engine, which would include amending the country’s debt brake rules. Hopefully, the rise of the AfD will give Germany’s establishment parties enough motivation to implement a policy course change.
Chart of the Month
Donald Trump has started his second term in office at a fast pace.
Macro Radar
Taking the pulse of economic activity
Trump gets down to work with verve Donald Trump has started his second term in office at a fast pace. On his very first day back in the Oval Office, he issued dozens of executive orders and made good on some of his election campaign promises with regard to, for example, immigration policy and rolling back the Biden administration’s decarbonization strategy. In addition, true to the motto “Make America Even Greater,” the US president unveiled a USD 500 billion artificial intelligence investment initiative called “Stargate.” Trump has also made good on his threats with regard to punitive tariffs and has so far targeted Canada, Mexico and China. Higher tariffs on EU imports are also up in the air. The EU Commission is already giving thought to what it could offer Trump. Besides importing more US liquefied natural gas (LNG), purchasing armaments or lowering EU tariffs on automobiles imported from America would be other possible options.
Checks and balances
Sentiment in the C-suites of US corporations is overwhelmingly upbeat in the wake of the government handover. The ranks of those exuding optimism include banks, which can anticipate vibrant M&A business on the back of deregulation and prospectively less stringent antitrust authorities. However, a certain Trump bonus is already factored into the consensus projection for US economic growth for 2025. In contrast to the prior two years, the consensus estimate at the outset of this year projects GDP growth of more than +2% for the USA. So, there’s a certain degree of potential for disappointment if Trump’s policies turn out to be less stimulative and/or entail greater risk than hoped. Some checks and balances, though, will likely keep Trump’s policies from getting out of hand. First, inflation is loathed by the public; second, Trump measures his success on the basis of how the stock market performs, and third, the Republicans hold only a razor-thin majority in the US Congress.
No surprises from central banks
Unlike Donald Trump, US Federal Reserve Chairman Jerome Powell is not fond of springing (monetary policy) surprises. The Fed took a break in its rate-cutting cycle in January, as market participants expected it would. Even central bank officials do not know precisely in what direction US policies will swing in the future. Moreover, the very robust US economy to date in
the face of a still restrictive interest-rate level provides another reason to pause and catch breath. There would be arguments in favor of more rate-cutting if inflation were to recede further in the months ahead, which is quite likely to happen in view of the slow-moving rent component of inflation. The European Central Bank’s latest policy rate cut to now 2.75% likewise came as no surprise. At least three more quarter-point interest-rate cuts by the ECB are currently priced in on the financial market, which means that the interest differential versus the USA looks set to stay wide.
China grows (officially) by 5%
Thanks to a final growth spurt (+5.4% year-on-year) in the fourth quarter of last year, China’s economy expanded by 5% in 2024, according to official statistics, and was thus bang in line with the government’s target. However, there are big doubts about the official figures. Economists in and outside China are expressing skepticism about the country’s persistently high growth numbers, which do not jibe with public perception and business sentiment in China. The think tank Rhodium recently appraised China’s actual economic growth rate as being in the range of +2.4% to +2.8%. An (unrealistically) high +5% target is likely to be issued again by Beijing for 2025 as well. It will probably take even bigger economic stimulus measures from the government to meet that goal.
High expectations | The Trump turbocharger is already largely priced in Consensus estimate of US economic growth
The EU Commission is already giving thought to what it could offer Trump.
Sources: Bloomberg, Kaiser Partner Privatbank
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Equities: Good start to new year
• Equity markets around the world started off 2025 with upward momentum, with the S&P 500 and Euro Stoxx 50 indices both climbing to new all-time highs in January. In contrast to its performance last year, the European benchmark index exhibited relative strength in January and significantly outgained the S&P 500, ending its more than nine-month-long rangebound meandering in the process and delivering a new technical buy signal. The large-cap stocks in the Swiss Market Index likewise participated disproportionately in the rally in recent weeks, but collectively are still around 5% below their late-2021 all-time high. Whether this outperformance and the recently observable net inflows into European stocks are more than just a flash in the pan remains to be seen in the weeks ahead. Similar outperformance and net inflow phases have occurred frequently in the past, but have consistently proven short-lived.
• The corporate earnings trend will likely be a key co-determinant of the relative performance of regions in 2025. The bars, though, are already set relatively high, particularly for Europe. Analysts expect European companies to post a sharp acceleration in profit growth and project a roughly 10% earnings expansion for the year. Those expectations, however, seem unrealistically ambitious given the sluggish economic growth in both the Eurozone and China and against the backdrop of ongoing geopolitical un
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certainty (read: punitive tariffs). Last but not least, the still-vibrant momentum at the big US technology companies makes it more likely that corporate earnings in the USA will outpace European profit growth again this year. Stock buybacks, which are expected to set new records in 2025, are bound to also buttress the US equity market.
• The narrow market concentration in the USA will remain a hot topic of conversation in the near future. Since earnings growth looks set to decline for the Magnificent Seven and to increase for the rest of the market in the quarters ahead, major stock rotations over the course of this year cannot be ruled out. This could benefit US small caps to a significant extent. In the alternative scenario, however, the current AI euphoria could foster a bubble-like trend and further increase the dominance of Big Tech at first. A major correction is at least not in sight on a near-term horizon of one to three months. Although Big Tech stock prices retreated only marginally at around the
The narrow market concentration in the USA will remain a hot topic of conversation in the near future.
The ongoing bond selloff entered the second round in December.
turn of the year, investor sentiment has cooled noticeably. This means that there are enough potential buyers back on the sidelines at the moment who could jump in again and drive share prices even higher.
Fixed income: Maneuver tactically with government bonds
• The ongoing bond selloff entered the second round in December, with the yield on 10-year US Treasurys since rising to a peak of 4.8% and then dropping back again after having climbed to just a couple ticks away from the high of around 5% hit in October 2023. Although a pickup in US economic growth data and a temporary pause in the disinflation trend in the USA definitely provide reasons for the rise in yields, the magnitude of the increase seems disproportionate, particularly since it has been accompanied by policy rate cuts by the US Federal Reserve. A phenomenon of this kind is not unprecedented in history, but is at least a rare occurrence. It can be explained by the “term premium” concept. Bond investors by now are demanding a resumption of compensation for the risk they take on when they lend money to governments for a lengthy period. This normal condition on the fixed-income market was interrupted for more than a decade particularly by rampant bond buying by central banks in the aftermath of the financial crisis. The return of monetary policy back to normal is now also setting risk premiums back to normal. There are enough rational arguments at the moment for higher term premiums. Further mounting public debt is one of them, but so are the hard-to-predict policies of the new US president.
• The future inflation trend will likely co-determine the future progression of yields and bond prices. If US inflation trends toward 2%–2.5% in the months ahead, that would give the Fed room for further rate-cutting. The yield on 10-year US Treasury notes would then likely move toward its “fair value” of around 4%. A not entirely impossible second burst of inflation conceivably induced by the new policy course in the White House alternatively could briefly push the yield above the 5% mark. That, however, would send a strong negative signal and would likely force a renewed change of course. Tactically minded investors can use the potential 4%–5% trading range to fine-tune their exposure to government bonds on the margins.
Alternative assets: Positive prospects
• The outlook for alternative assets for 2025 is very constructive across all categories. Thanks to the Trump 2.0 administration and a foreseeable loosening of regulations, and owing in no small part to talk about a establishing a national strategic Bitcoin reserve, investor euphoria about crypto-
currencies remains exuberant. However, investors should approach exposure to crypto cautiously. A small allocation to crypto can be adequate enough to counter cognitive dissonance and to switch off FOMO (the fear of missing out). However, it should be counterbalanced by an allocation to non-digital (classic) gold. Private-market assets also work well in a barbell strategy of this kind. While the private equity carousel appears poised to start spinning faster again soon and a pickup in (performance-boosting) exits via IPOs and M&A deals is expected, private credit also remains attractive thanks to continued high interest-rate levels. Meanwhile, investments in infrastructure assets are benefiting from the converging megatrends of digitalization and decarbonization. Finally, the real estate sector, too, appears to have bottomed out, though choosing products and managers judiciously is still vitally important here.
Currencies: Dollar bulls are tiring
• EUR/USD: The EUR/USD exchange rate probed new lows at first in January and fell to almost within two cents of parity. At that point, an overdue retracement commenced. Not only was the positioning of market participants extremely bullish on the dollar, but in addition, interest-rate expectations for the Fed (higher for longer) and for the European Central Bank (more than four quarter-point rate cuts this year) also were overly divergent. An abrupt turnaround toward euro strength is improbable in the near term, but it seems possible that the EUR/USD cross may find a floor in the medium term given the rich valuation of the US dollar.
• GBP/USD: The British pound has been an underperformer in recent weeks, including against the euro. An increase in the risk premium in view of the unsound budgetary situation and the dual strain of disappointing economic growth data and recent lower-than-expected inflation are the causes of the slumping pound. The Bank of England may now, after all, actually deliver more interest-rate cuts this year than heretofore anticipated. Narrowing interest-rate differentials are likely to further weigh on the pound for the time being.
• EUR/CHF: The euro gained ground at the start of this year also against the Swiss franc as the EUR/CHF exchange rate climbed back above 0.95 for the first time since September. Here, too, we think that we are witnessing a return of the intermittently extreme euro bearishness of recent months back to normal more than we are seeing a long-term trend reversal. Further fundamental upside potential exists in the weeks ahead, especially if economic data from the Eurozone deliver a pleasing surprise for a change. But it would come as a real surprise if the euro were to reconquer parity in 2025. That scenario, though, seems a bit overly optimistic.
Year after year, most banks and research firms publish year-end forecasts for the major international stock indices. As so often happens, they are predicting solid positive returns once more for 2025. Most of the price targets for the USA’s S&P 500 index imply an advance of between 5% and 15%, averaging out to a projected gain of 10% for the year. None of the 24 analysts expects to see a return below –8% or above +19%. Those numbers aren’t entirely coincidental. That’s because for one thing, the annualized return on US blue chips since 1926 amounts to exactly +10%. Moreover, analysts run serious reputation risk if they stray too far from the crowd and expose themselves with an outlier prediction. In any case, though, the analyst community’s price targets guided by herd instinct are unsuitable as a roadmap for investors. In the S&P 500 example, year-end index levels below 5,500 or above 7,100 points are statistically more probable than all of the variants in between. Average years for stocks occur only with below-average frequency. The upshot of this is that index forecasts may have entertainment value, but shouldn’t distract anyone from his or her long-term investment strategy.
Chart in the Spotlight
Analysts love the average… | …but average equity returns are rare Distribution of annual returns for the S&P 500 (1926–2023)
Range of 2025 sell-side forecasts Range of 2025 sell-side forecasts (excluding outliers)
Sources: Bloomberg, BCA Research, Kaiser Partner Privatbank
Theme in Focus
Short selling: An investment strategy with an image problem
Short sellers are a peculiar species among the many actors on financial markets. Their actions require not just a lot of capital, loads of detective work, and plenty of staying power, but also necessitate good risk management practices and a dose of courage. Short sellers are beloved by few, but they perform an important control and corrective function on markets. Over the course of the ongoing bull market in recent years, more and more hedge funds have pulled out of this tough business. Individual private investors should bet neither along with nor against short sellers. However, possessing knowledge about this investment strategy with an image problem can be helpful.
Detested and expendable(?)
Betting on falling share prices and thus (seemingly) on the failure of companies goes against the natural instincts of stock-market investors, but that’s exactly the line of work that short sellers engage in. Their business goes like this: (1) borrow shares and sell them, (2) afterwards buy the shares back at lower prices and return them to the lender, and (3) then pocket the price
difference (minus the borrowing costs) as a profit. This investment strategy has been around for centuries and has always had an image problem. Napoleon, in his day, characterized short sellers as “stock-market highwaymen” and outlawed the controversial trading practice. A few years ago, Richard Grasso, the former chairman of the New York Stock Exchange, called short sellers “despicable and un-American.” Short sellers are disliked to this day, particularly by the CEOs of companies whose shares are in their crosshairs. They also have a tough time with public policymakers. Short sellers repeatedly have been falsely stigmatized as instigators of turbulence on equity markets, and short selling has been banned temporarily at times, such as in the case of financial stocks during the 2008 financial crisis in the USA. The most recent example of this was delivered by South Korea in late 2023 in the form of a general ban on short selling in the runup to the country’s parliamentary elections. Short sellers, though, are actually downright loved by at least one group of people: journalists. Short sellers often supply spicier information than typical brokerage reports provide. Short sellers, not infrequently, are the only ones who go against herd opinion, and they sometimes uncover sensational scandals. They regularly provide rich fodder for the media.
One of the most spectacular short trades in history was the bet against Enron made by Jim Chanos, the founder of the hedge fund Kynikos Associates. In the year 2000, he was one of the first investors to detect irregularities at the US-based energy company and helped to uncover a massive accounting fraud there. The implosion of Enron’s stock price from USD 79.14 (Chanos’s average selling price) to a mere USD 0.60 per share in December 2001 likely reaped him a profit of over USD 100 million back then. But there have also been some interesting short-selling stories in more recent times. One example is the 2020 story of the purportedly electric-powered Nikola truck that was shown merely rolling downhill with no power in a marketing video. This manipulation
by the Nikola Corporation and its systematic deception of the public were uncovered by Hindenburg Research. This investment research firm specialized in short selling has drawn increasing attention to itself in recent years with its successful short bets. But there have also been some big busts now and then in the past. For instance, in 2016, Bill Ackman and his hedge fund Pershing Square Capital Management started to bet against Herbalife, a maker of weight-loss shakes and vitamins. An investigation of Herbalife by the US Federal Trade Commission found that the company indeed deceived consumers, but did not fraudulently operate a pyramid scheme as Ackman suspected. In the face of losses in the triple-digit millions, Ackman eventually threw in the towel in 2018.
Not an easy business
As the last of the preceding examples illustrates, short selling is one thing above all: an extremely tough business. A gain of 100% at the most (in the event that the price of the stock drops to zero) is counterpoised by a potentially unlimited loss (if the price of the stock rises).
A short seller needs a lot of staying power because even if there are very good reasons for betting on a falling stock price, it can take a very long time until the rest of market participants spot a company’s weaknesses and its stock price drops. A short seller also needs luck with the timing. A misfortune, for example, is when a shorted stock suddenly becomes a speculative plaything of takeover rumors, which can happen particularly in inexpensively valued markets. To get around the timing problem, (activist) short sellers usually publicly disclose the rationale for their positions. Short-selling campaigns of that kind regularly result in short-term success (in the form of at least temporary price declines in the shorted stock). However, companies in the crosshairs of short sellers are increasingly taking legal actions to defend themselves, so short sellers frequently operate with one foot in the courtroom. But the biggest problem facing the strategy aimed at earning profits on falling stock prices is – hardly surprisingly – rising stock prices. Short selling accordingly has hardly been lucrative in the bull market that has been raging for 15 years now. To wit, the performance of the HFRX Equity Hedge Short Biased Index has averaged out to –10% per annum since 2009, and that has had repercussions. Dozens of hedge funds with a short bias have had to close in recent years. The number of funds in the HFRX Equity Hedge Short Biased Index decreased to 14 this past summer from 54 in 2008, prompting index provider HFR to capitulate and suspend publication of the index. Even Jim Chanos has raised the white flag by now. In the aftermath of bad speculations (including against Tesla) and in view of the drastically diminished assets left in his hedge fund (which fell from USD 8 billion in 2008 to USD 200 million in 2023), Chanos paid his investors their capital back in the spring of 2024. However, his basic assessment of the equity market hasn’t changed. In his last letter to investors, Chanos wrote that the “golden age of fraud” is still in full swing.
(Too) many obstacles | Short sellers on the retreat
Number of short-selling campaigns worldwide
The GameStop rollercoaster
Short selling has always been a difficult endeavor, but it has become even more challenging in recent years. This is due in no small part to the increasing influence of social media and the growing role being played by small retail investors thanks to commission-free stock trading. An article on short selling therefore cannot do without talking about the legendary GameStop episode. In the year 2020, shares of GameStop seemed a perfect candidate for a textbook short trade. The company sold computer games and for years had neglected the trend toward online retailing and gaming. It still conducted its (chronically loss-making) business largely the old-fashioned way through approximately 5,000 bricks-andmortar stores located mainly in the USA, Canada, and Australia. The unattractiveness of GameStop’s business model was compounded by weird statements by the company’s CEO, suspected accounting shenanigans, and the apparent lack of a strategy for the future. To many hedge funds, it was obvious that GameStop’s stock price could only go downhill in the long run. However, they didn’t reckon with bumping up against a horde of thousands of small retail investors who were sitting at home bored to death by the COVID-19 lockdown. They spotted the hedge funds’ big short positions and coordinated a classic short squeeze via the online forum Reddit at the start of 2021. Over a threeweek period that began on January 4, GameStop’s stock price soared from USD 4.50 to over USD 80 at its peak. The short sellers who were caught on the wrong foot by the rocketing stock price ultimately had to close out their positions at substantially higher prices. Their short covering additionally fueled the rally, leaving casualties in its wake. Hedge fund Melvin Capital was squeezed so severely that its losses on its speculation on GameStop intermittently amounted to over 50% and necessitated cash injections from other hedge funds (Point72 and Citadel). Melvin Capital never recovered from that shock. A little less than one-and-a-half years later, the closure of the hedge fund, which was still worth billions, was announced by its founder, Gabe Plotkin.
Short selling has always been a difficult endeavor, but it has become even more challenging in recent years.
Sources: Diligent Market Intelligence, Kaiser Partner Privatbank
The purported victory of David (small retail investors) over Goliath (hedge funds) has since been chronicled by Hollywood in the film "Dumb Money". But this episode on the capital market also had other consequences for the hedge fund industry: it was followed by hearings before US Senate committees and by investigations of dozens of hedge funds and short sellers by the US Securities and Exchange Commission (SEC). The hearings and investigations have yielded no outcomes or indictments to date, but the SEC has tightened disclosure rules for short selling. As of the start of 2025, hedge funds now are required to disclose their short positions at the end of each month if they exceed a certain size (2.5% of all shares outstanding, or more than USD 10 million). The increased transparency is desirable from the perspective of the public at large precisely because the business of hedge funds is generally perceived to be very opaque, and it is all the more why short sellers are likely to steer clear of meme stocks like GameStop, AMC, and Blackberry in the future.
Why we need short sellers
However, let us hope that not all short sellers will withdraw in the face of the difficult environment. It is beyond dispute that short sellers do a world of good for the financial market – the body of research on this issue is unequivocal in its findings. For one thing, short selling facilitates price discovery. Since short sellers face potentially unlimited losses, their positions are frequently backed by thorough research. Short sellers frequently spot irregularities that analysts, auditors, and investors overlook. Their sell orders exert downward pressure on the prices of overvalued stocks and contribute to establishing a fairer market price. Precisely in today’s investment world, in which passive strategies (ETFs and index funds) account for an ever larger percentage of invested capital and in which investment banks hard-
ly issue sell recommendations anymore, active market participants like short sellers are vitally important. Moreover, short sellers improve market liquidity. A study by the Federal Reserve Bank of New York1 showed that the partial ban on short selling imposed on the US equity market during the financial crisis did not prevent stock prices from plummeting further, but led to lower liquidity and higher trading costs, contrary to the intention of regulators. Similar findings were reached by a study2 that examined the March 2020 coronavirus crash on six different stock markets in Europe. Third, the active participation of short sellers in the financial market reduces the risk of stock crashes. In a natural experiment, Deng et al.3 demonstrated that the lifting of constraints on short selling decreases the risk of drastic price crashes.
Viewed positively, short sellers act as policemen on the equity market. In a study titled “The Invisible Hand of Short Selling,”4 Massa et al. highlight how short selling functions as an external governance mechanism that disciplines the managers of publicly traded companies to engage in less window dressing of financial statements. According to Jonathan M. Karpoff and Xiaoxia Lou,5 short selling also contributes to faster detection of misleading information and deception of the public. Short sellers thus sometimes do the job that is actually entrusted to regulatory authorities. In the case of the spectacular bankruptcy of German financial services firm Wirecard, for years short sellers were on the right trail, but were driven into a corner by Germany’s Federal Financial Supervisory Authority, which even banned short selling of Wirecard shares for a time. In summer 2020, Wirecard’s executive board finally had to confess that EUR 1.9 billion really was missing from the company’s coffers, proving the short sellers right in the end.
In summary, short selling is an essential element in the financial-market architecture. Hedge funds, by the way, would not be able to hedge without short selling. However, certain (malicious) practices for which short sellers often get criticized in the media shouldn’t go unmentioned. One of them is the use of “short-and-distort” strategies, an illegal practice whereby misleading information about a company is deliberately disseminated, particularly via social media these days. A stockprice plunge induced this way often can be exploited profitably. Naked short selling is another practice banned in most jurisdictions. Naked shorting is the act of short-selling shares on the market without having borrowed them beforehand. Naked shorting not only puts greater downward pressure on the stock price of the attacked company than would normally be possib-
Viewed positively, short sellers act as policemen on the equity market.
le (because a sufficient number of shares is not always available to be lent and borrowed), but also increases the risk of incorrect trade settlements.
Not a strategy for individual private investors
Hours and hours of research work, finite financial resources, and limited profit possibilities coupled with the risk of potentially unlimited losses make it obvious that short selling is not a strategy for individual private investors. But it is just as inadvisable to join the other side and bet against “evil” hedge funds along with the day-trading community. However, the empirical evidence on the short-selling strategy and its side effects that has been accumulated over the last several decades isn’t all in vain. For example, it has been proven many times over that a high percentage of short-sold shares (short interest) is a good predictive indicator of a future below-average corporate stock-price performance. Another good indicator is the fees that a short seller has to pay to borrow shares of a company. A high lending fee implies keen demand from short sellers and signals a mispricing of the stock. Individual private investors can use short interest and borrowing costs as a filter for their investment decisions. This not only enables them to avoid overvalued stocks that are likely to underperform in the future, but also spares nerves. A look at the performance of the Goldman Sachs basket of most-shorted US stocks shows how volatilely they have behaved in the past. Their performance fluctuated wildly again in 2024 and oscillated between almost –10% and +15% in the space of a few weeks in early summer.
Conclusion
Short selling is not something exclusively for speculators. For fund managers, for example, short selling is a vital tool for hedging a portfolio against risks. But even speculation by a classic short seller isn’t objectionable in principle. As the policemen of Wall Street, short sellers perform an important control function. It would be desirable if short sellers were allowed to keep on playing this role in the future. Their participation in price discovery can contribute to establishing a fairer value at least for shares of small-, mid-, and large-cap
A playground for gamblers… | …but not for investors Most-concentrated shorts basket vs. Russell 3000 index
companies. But in the micro-caps space, where lending fees sometimes reach high double-digit or even triple-digit territory, the bar for a successful short trade is set prohibitively high for even the most daring short sellers. This market segment will likely remain a stomping ground for bored small investors in the future. Short sellers and individual private investors should both steer clear of this part of the market.
1 R. Battalio, H. Mehran, P. Schulz (2011): „Market Declines: Is Banning Short Selling the Solution?”
2 W. Bessler, M. Vendrasco (2022): „Short-selling restrictions and financial stability in Europe: Evidence from the Covid-19 crisis”
3 X. Deng, L. Gao, J-B. Kim (2020): „Short-sale constraints and stock price crash risk: Causal evidence from a natural experiment”
4 M. Massa, B. Zhang, H. Zhang (2014): „The Invisible Hand of Short Selling: Does Short Selling Discipline Earnings Management?”
5 J. M. Karpoff, X. Lou (2010): „Short Sellers and Financial Misconduct”
Short selling is not something exclusively for speculators.
Sources: Goldman Sachs, Bloomberg, Kaiser Partner Privatbank
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