Bears going extinct? Monetary policy and the survival of short sellers

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Speaker: Dr Forester Wong, City University of Hong Kong

About the seminar topic

Short sellers are often viewed as informed traders who enhance price discovery and discipline corporate managers. Yet practitioners argue that prolonged periods of accommodative monetary policy have made short selling increasingly difficult, contributing to the disappearance of bearish capital. We examine the fragility of short sellers and the influence of monetary policy using hedge fund data from 1998 to 2023. We develop a portfolio-allocation-based identification approach that classifies funds as short sellers when reported short allocations exceed long allocations across regions or instruments. We find that short-selling funds face substantially higher exit risk than other hedge funds, and that this survival gap widens when policy rates remain below Taylor-rule benchmarks implied by economic fundamentals. To strengthen causal interpretation, we exploit exogenous interest rate variation imported through Hong Kong’s currency peg and show heightened attrition among funds net short Hong Kong equities during low-rate episodes. Further evidence suggests that the adverse effect of accommodative monetary policy on short seller survival operates primarily through elevated valuations. Taken together, our findings indicate that accommodative policy imposes an underappreciated externality: it erodes the market’s informed negative capital that is crucial to the functioning of financial markets.

Speaker bio

Forester Wong is an Assistant Professor of Accounting at the City University of Hong Kong. His research examines information asymmetry, corporate governance, short sellers, and capital markets, with a particular focus on the role of emerging technologies and big data in financial decision making.

He has published in leading journals including The Accounting Review, Journal of Accounting Research, Management Science, and Accounting, Organizations and Society, with work cited in multiple US Securities and Exchange Commission rulemakings. 

His research also leverages innovative data sources such as satellite imagery, mobile phone geolocation data and machine learning to study investor behaviour and information flows.

He received his PhD in Accounting from Columbia University and previously served on the faculty at the University of Southern California.

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