Hedge Funds and Short-Sale Performance

By using a rich dataset of daily short-sale disclosures provided by the European Union, I testthe performance of short-sellers from hedge funds over the period November 1 2012 - De-cember 31 2018. I find that short-sellers earn an annualized 4-Factor alpha of -7.23%, whichcan largely be attributed to unprofitable momentum trading and excessively large short po-sitions. Furthermore, I quantify the performance of short-sellers using a value-added figureand determine that the hedge funds in my dataset create value-added of $-2,375,513,600 peryear. Finally, I test the performance of hedge funds in relation to five of their correspondingcharacteristics: management fees, incentive fees, assets under management, age and rateof return. Majority of the results for these variables are inconsistent, however, I find thatincentive fees positively predict hedge funds’ short-sale performance.