Hedge Funds: Great with small caps, not shorts

MarketWatch – So far this year, the 30 most widely shorted stocks from the beginning of 2013 — as measured by the number of shares short as a percentage of the float — have returned 34%, outperforming the S&P 500 by a considerable margin.

While in our analysis these stocks do have an average beta a bit higher than 1 — about 1.2, judging from daily returns this year — this isn’t high enough to account for their superior returns. In other words, so far this year heavily shorted stocks have, on average been good sources of alpha.

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