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The verdict is in on short-sellers of stocks: They greatly benefit all of us MarketWatch 2/20/2021
MARKETWATCH PREMIUM
At great career risk, I want to put in a good word on behalf of the research that short-seller firms conduct.
My career risk springs from the highly polarized environment that has prevailed in the aftermath of the GameStop Corp. saga, which has pitted small investors (the good guys) against short-selling hedge funds (the bad guys).
I’m not kidding. When three weeks ago I suggested that short-sellers are not all bad, and that they in fact have a role to play in a well-functioning market, I received more vitriolic email than I had in years.
Hong-kongStockholmSwedenAlexander-ljungqvistJonathan-karpoffVivian-fangAllen-huangWarren-buffettXiaoxia-louWenlan-qianGamestop-corpStockholm-school-of-economicsHow Companies Pay Shareholders: Are Buybacks Good For Shareholders In The Long Run?
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Given the dynamics we ve discussed earlier regarding buybacks, it should be no surprise to see that they tend to be additive to performance. Of course, critics acknowledge that buybacks tend to boost short-term prices. How could anyone deny that an increase of buying any asset,
ceteris paribus, increases its price? But what critics miss is that gains are not limited to the short run. Buybacks do increase the short-term stock price – but they increase the long-term stock return even more. A seminal paper by David Ikenberry, Josef Lakonishok and Theo Vermaelen found that firms that bought back stock beat their peers by 12.1% over the next four years. While this study was published in 1995 and analyses US firms, a 2018 investigation of 31 countries by Alberto Manconi, Urs Peyer, and Theo Vermaelen finds that this result generally holds worldwide.
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