Investor Sentiment, Profitable Trading Strategies, and Short Sale Constraints

I investigate whether the relation between investor sentiment and profitable trading strategies is due to short sale constraints. I find that the average security in these strategies is not hard-to-short. Furthermore, the short leg does not appear to be harder to short or more overvalued than the long leg. However, I find that these strategies are more illiquid and have higher institutional ownership following low sentiment. Additionally, I find that the long leg has a positive liquidity beta, while the short leg has a negative liquidity beta. These results imply that the relation between investor sentiment and profitable trading strategies could be due to illiquidity and institutional trading, rather than short sale constraints