Short sellers are about to face a pinch. A growing trend in the market sees them having less access to the most appropriate stock to short, while fast-growing hedge fund demand is creating a supply-demand gap in the short selling market.
Which could help explain why hedge funds increasingly pay prime brokers to borrow, with reverse rebates paid on difficult stock to borrow on the increase over the last couple of years. Also, the number of heavy losses made by short sellers recently on less appropriate stock to short, such as Amazon, an internet retailer, and Dendreon, a biotechnology company.
"Hedge funds have been in a bull market, but shorting has made it like sailing a boat with its anchor out – there's a drag on the short side," says Charles Gradante, co-founder of the Hennessee Group, an advisor...
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