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Short Ratios of HK Stocks

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  1. #1

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    Short Ratios of HK Stocks

    Quite unrelated, I have been wondering whether the short selling data on aastocks are a reliable indicator of the short term movement of a stock price.

    For example, Agile Group (3383) shows a 25.7% short selling ratio, which seems to be a big number, and the price did drop by 2.46% yesterday. HSBC has a smaller short selling ratio, and the price dropped by less. On the other hand, 3988 has a higher short selling ratio and no price movement yesterday. I used to look at it when I stocked up on REITs, and I think it did help me to save some money, but I don't know how reliable it is in general. Is anybody using it when trying to time a stock purchase?

    Short Selling – Stock Short Selling


  2. #2

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    Don't compare shorts of apples and steaks. The two are very different entities... Best to avoid those ratios in my opinion. Stick to the basics.

    (splitting this out from another thread)

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  3. #3

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    It's a fair question but it comes with a bunch of issues which make it difficult to asses. This is unlikely to be a complete list but in addition to the genuine short interests:

    1. for at least some shares a sizeable amount of the short selling volume is hedging done by issuers of derivative instruments;

    2. for A/H shares I understand that some investors attempt to arbitrage the differences in prices (e.g. by going long the H share and short the A share or vice versa);

    3. for shares which are included in an index attempts to either hedge or arbitrage index exposure can result in short interests being opened.

    I have no idea how extensive these are either in general or in relation to any individual shares.

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  4. #4

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    Short ratio refers to shares already shorted.. and like tinvestor said people short stocks for a variety of reasons.. warrants, options, convertibles...

    If you look at tesla, which is one of the most shorted share in the world, the market jerk when there are some good news and short covering caused the share to shoot to the roof... if you want more example, the takeover by VW of Porsche was really classical.. even though that involved alot of things at the back end like undeclared stock holding from derivatives, etc... but shorting a stock that has been heavily shorted can really have bad outcome if you don't manage the risk properly.

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  5. #5

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    Quote Originally Posted by freeier
    Short ratio refers to shares already shorted.. and like tinvestor said people short stocks for a variety of reasons.. warrants, options, convertibles...

    If you look at tesla, which is one of the most shorted share in the world, the market jerk when there are some good news and short covering caused the share to shoot to the roof... if you want more example, the takeover by VW of Porsche was really classical.. even though that involved alot of things at the back end like undeclared stock holding from derivatives, etc... but shorting a stock that has been heavily shorted can really have bad outcome if you don't manage the risk properly.
    I believe that shorting stocks should be prohibited.
    Invest in a stock if you think it will go up or for the dividend etc.. Shorting stocks brings so many other issues (like those companies who short a stock and then write a negative report about them)
    shri likes this.

  6. #6

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    Quote Originally Posted by Sith
    I believe that shorting stocks should be prohibited.
    Invest in a stock if you think it will go up or for the dividend etc.. Shorting stocks brings so many other issues (like those companies who short a stock and then write a negative report about them)
    With respect I have to disagree with this. Leaving aside the belief that people who believe a share is overvalued should be entitled to profit from being right (or suffer losses if wrong), allowing short selling is beneficial to the market as a whole:

    1. it acts as a break reducing the risks that shares will become severely over priced

    2. investors looking to find overpriced shares provide a powerful incentive to company management not to fudge the accounts – in effect short sellers provide a degree of scrutiny

    3. hedging often requires short selling

    4. market making often requires short selling

    5. short sellers provide additional liquidity

    Also, there are regulations in place which make it difficult to use short selling alone to manipulate a share price downwards. For the most part the ones we have in Hong Kong have been effective. The days of punters like Jay Gould, Jim Fisk and Jesse Livermore are long behind us.

    As a side note, I seriously doubt whether simply banning short selling would be effective. People who are determined to sell down a share will find another way of doing it.

    What we do need is an effective way for companies and shareholders to obtain compensation from people who publish false information about companies. Sure, there are provisions in the Securities and Futures Ordinance which facilitate this but, in practice, the cost of going through litigation makes those provisions meaningless for the average punter.
    john_1122 likes this.

  7. #7

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    Is shorting stocks legal (permitted) in mainland china?