To elaborate on the information acquisition cost point; small pieces of information won’t be worth tying up a big amount of capital for.
If you have a company worth $1 billion and you have very good insider info that a project of theirs that the market implicitly values at $10 million is going to flop, if the only way you can express that opinion is to short the stock of the whole company that’s likely not even worth it. Even with 10% margin you’d be at best making a 10% return on capital over the time horizon that the market figures out the project is bad (maybe O(1) years), and that mean return would come with way more risk than just buying into the S&P 500, so your Sharpe would be much worse.
In general this kind of trading is only worth it if your edge over the market is big enough. If you just know something the market doesn’t know that’s not very useful unless you can find someone to bet on that exact thing rather than have to involve a ton of other variance in your trades, and even if you try to do that people can figure out what you’re up to and refuse to take the other side of your trades anyway.
To elaborate on the information acquisition cost point; small pieces of information won’t be worth tying up a big amount of capital for.
If you have a company worth $1 billion and you have very good insider info that a project of theirs that the market implicitly values at $10 million is going to flop, if the only way you can express that opinion is to short the stock of the whole company that’s likely not even worth it. Even with 10% margin you’d be at best making a 10% return on capital over the time horizon that the market figures out the project is bad (maybe O(1) years), and that mean return would come with way more risk than just buying into the S&P 500, so your Sharpe would be much worse.
In general this kind of trading is only worth it if your edge over the market is big enough. If you just know something the market doesn’t know that’s not very useful unless you can find someone to bet on that exact thing rather than have to involve a ton of other variance in your trades, and even if you try to do that people can figure out what you’re up to and refuse to take the other side of your trades anyway.