Meme reversion

Short-selling individual securities carry asymmetric risk given the potential positive return is capped, while the downside is effectively unlimited. Nevertheless, quantitative analysis has found that short-selling data enhances established factors like momentum, quality, and value. In particular, the most shorted stocks have tended to underperform while the least shorted stocks have outperformed. However, as our quantitative research group noted last year, the meme stock trading frenzy that peaked in 2021 briefly called into question the effectiveness of the short-selling signal. Nevertheless, an updated analysis of stocks within the MSCI Developed Market index finds that the cumulative returns of the least shorted stocks continues to outperform the most shorted stocks. Apparently even meme stock trends revert to the mean.

Source: Refinitiv, Markit, Robeco January 2024.