factor library

Taiwan’s short-selling signals are often misleading because the market operates under a dual-track system: retail investors short stocks through margin accounts, while institutional investors use securities borrowing and lending (SBL). Only SBL-based short selling reflects informed institutional sentiment, while margin shorting introduces noise. This study isolates SBL to construct the Short Interest Ratio (SIR) and evaluates its ability to predict cross-sectional returns and reveal size-dependent patterns in informed short-selling behavior.

This study examines whether incorporating the Short Interest Ratio (SIR) can improve the performance of a 52-week high momentum strategy in Taiwan. By comparing a baseline momentum model with two SIR-enhanced versions—one using SIR as a filter and another integrating it into a composite score—we find consistent gains in returns, lower volatility, and reduced drawdowns. The results show that SIR strengthens momentum strategies by identifying stocks under institutional short-selling pressure.