The Term Structure of Short Selling Costs

Short sellers care about (i) how overvalued an asset is and (ii) when the overvaluation will be corrected. Hence, short selling costs should higher over horizons negative information more likely to arrive. This article presents a model formalizing this intuition tests using put–call parity condition. Forward shorting predict future stock returns, consistent with expectations hypothesis in market. Additionally, upward sloping term structure around earnings announcements increases probability of surprise, evidence that are My findings suggest conveys long overpricings expected persist.