Why Does ETF Short Selling Provide a Different Signal?

Journal of Index Investing, Forthcoming

Posted: 17 Dec 2012 Last revised: 15 Jul 2015

See all articles by J. Christopher Hughen

J. Christopher Hughen

University of Denver - Daniels College of Business

Xiaoyu Ma

Independent

Date Written: December 17, 2012

Abstract

Short selling is of great interest to investors because this activity has predictive value for future stock returns. We investigate whether this extends to foreign stock ETFs. In contrast to regular stocks, ETFs with high short interest experience positive abnormal returns. Our analysis suggests that the creation and redemption of ETF shares influences the level of short selling. We also find that foreign stock ETFs with low short interest have positive abnormal returns. These abnormal returns are typically caused by higher prices in foreign stock markets and not exchange rate changes. Boehmer, Huszár, and Jordan [2010] document excess returns for regular stocks with low short interest. Our study provides an important extension to this line of research by showing that it exists for securities with minimal asymmetric information.

Keywords: ETF, short selling, foreign stocks

JEL Classification: G12, G14

Suggested Citation

Hughen, John Christopher and Ma, Xiaoyu, Why Does ETF Short Selling Provide a Different Signal? (December 17, 2012). Journal of Index Investing, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2190659 or http://dx.doi.org/10.2139/ssrn.2190659

John Christopher Hughen (Contact Author)

University of Denver - Daniels College of Business ( email )

2101 S. University Blvd
Denver, CO 80208-8951
United States
303-803-6171 (Phone)

HOME PAGE: http://www.hughen.com

Xiaoyu Ma

Independent

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