Short sales constraints and momentum in stock returns

Ashiq Ali, Mark A. Trombley

Research output: Contribution to journalReview articlepeer-review

40 Scopus citations


We show that stock characteristics identified by b14D'Avolio (2002) provide a reliable index of the mostly unobservable short sales constraints. Specifically, we find that this index is positively related to the level of short interest and to short selling costs implied by the disparity in prices in the options and stock markets, and is negatively related to future returns. Using this index, we show that the magnitude of momentum returns for the period 1984 to 2001 is positively related to short sales constraints, and loser stocks rather than winner stocks drive this result. We conclude that short sales constraints are important in preventing arbitrage of momentum in stock returns.

Original languageEnglish (US)
Pages (from-to)587-615
Number of pages29
JournalJournal of Business Finance and Accounting
Issue number3-4
StatePublished - Apr 2006
Externally publishedYes


  • Arbitrage costs
  • Market anomalies
  • Momentum returns
  • Short interest
  • Short sales constraints

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting (miscellaneous)
  • Finance


Dive into the research topics of 'Short sales constraints and momentum in stock returns'. Together they form a unique fingerprint.

Cite this