What is ‘Weak Shorts’
Traders or investors who hold a short position in a stock or other financial asset who will close it out at the first indication of price strength. Weak shorts are typically investors with limited financial capacity, which may preclude them from taking on too much risk on a single short position. A weak short will generally have a tight stop-loss order in place on the short position to cap the loss on the short trade in case it goes against the trader. Weak shorts are conceptually similar to weak longs, but the latter employ long positions.
Explaining ‘Weak Shorts’
Weak shorts are more likely to be carried out by retail traders rather than institutional investors, since their financial capacity is limited. That said, even institutional investors may find themselves in the weak-shorts camp if they are financially stretched and cannot afford to commit more capital to a trade.
Further Reading
- How are shorts informed?: Short sellers, news, and information processing – www.sciencedirect.com [PDF]
- Discussion of value investing: the use of historical financial statement information to separate winners from losers – www.jstor.org [PDF]
- The economics of IPO stabilisation, syndicates and naked shorts – onlinelibrary.wiley.com [PDF]
- Value investing: The use of historical financial statement information to separate winners from losers – www.jstor.org [PDF]
- Weak Correlations of Stocks Future Returns – arxiv.org [PDF]
- International portfolio choice and corporation finance: A synthesis – onlinelibrary.wiley.com [PDF]
- Value investing and financial statement analysis – www.jstor.org [PDF]
