Current literature shows that short sellers earn positive returns on their trades and that the superior performance of short sellers is due to their better analytic skills. In this paper, we investigate, if it is poss...Current literature shows that short sellers earn positive returns on their trades and that the superior performance of short sellers is due to their better analytic skills. In this paper, we investigate, if it is possible for a short seller to make profits even if he does not have insider information or is not sophisticated. We use a one period model and assume that stock price follows a random walk with a positive drift to show that the＇ expected return for an uninformed short seller is always negative and his risks are always greater than the risks of a stock buyer. Hence a short seller would not trade unless he has superior trading skills and/or information. We also show that the market conditions when the stock＇s dividend yield is greater than the risk free rate gives the shortsellers advantage over stock buyers.展开更多
The authors employ the recent stochastic-control-based approach to financial mathematicsto solve a problem of determination of the risk premium for a stochastic interest rate model,andthe corresponding problem of equi...The authors employ the recent stochastic-control-based approach to financial mathematicsto solve a problem of determination of the risk premium for a stochastic interest rate model,andthe corresponding problem of equity valuation.The risk premium is determined explicitly,by meansof solving a corresponding partial differential equation (PDE),in two forms:one,time-dependent,corresponding to a finite time contract expiration,and the simpler version corresponding to perpetualcontracts.As stocks are perpetual contracts,when solving the problem of equity valuation,the latterform of the risk premium is used.By means of solving the general pricing PDE,an efficient equityvaluation method was developed that is a combination of some sophisticated explicit formulas,and anumerical procedure.展开更多
文摘Current literature shows that short sellers earn positive returns on their trades and that the superior performance of short sellers is due to their better analytic skills. In this paper, we investigate, if it is possible for a short seller to make profits even if he does not have insider information or is not sophisticated. We use a one period model and assume that stock price follows a random walk with a positive drift to show that the＇ expected return for an uninformed short seller is always negative and his risks are always greater than the risks of a stock buyer. Hence a short seller would not trade unless he has superior trading skills and/or information. We also show that the market conditions when the stock＇s dividend yield is greater than the risk free rate gives the shortsellers advantage over stock buyers.
基金supported in part by the Center for Financial Engineering at the Suzhou University, Chinathe Taft Research Center at the University of Cincinnati, USA
文摘The authors employ the recent stochastic-control-based approach to financial mathematicsto solve a problem of determination of the risk premium for a stochastic interest rate model,andthe corresponding problem of equity valuation.The risk premium is determined explicitly,by meansof solving a corresponding partial differential equation (PDE),in two forms:one,time-dependent,corresponding to a finite time contract expiration,and the simpler version corresponding to perpetualcontracts.As stocks are perpetual contracts,when solving the problem of equity valuation,the latterform of the risk premium is used.By means of solving the general pricing PDE,an efficient equityvaluation method was developed that is a combination of some sophisticated explicit formulas,and anumerical procedure.
