Short side

The half of a long-short portfolio that bets on prices falling.

A long-short portfolio has two halves. The long side owns stocks and gains when they rise. The short side has sold borrowed stocks and gains when they fall. Each side can be measured on its own, and the question of where an effect lives, long or short, is often the whole finding.

The short side is harder in every way: it pays a borrow fee, it can be recalled, its losses have no ceiling, and it is where squeezes happen. That is also why an effect found on the short side is not automatically a trade: the logbook's earnings entry found that losers keep falling, and left it on record rather than chasing it, because that side was not written down before the test and because the borrow cost at a small size does not pay.

Up session Down session What we expected Sounded windowIllustrative, not market data

Illustrative. Short the most expensive-to-borrow stock: we expected an orderly decline (dotted). What we found was the same direction with violent squeezes on the way, which is where the variance that killed the statistic lives.

Where this word comes up

First needed in the log entry H-042 · The post-earnings bounce did not survive our cost assumptions.

From the same entry: Backtest, Basis point, Buy the dip, Correction for looking twice, Gross edge, Index membership, Large caps, Net return, Post-earnings drift, Pre-registration, Published anomaly, Quarterly results, Real costs, RSI indicator, Survivors only, Terciles.

← All terms