Why Does ETF Short Selling Provide a Different Signal?
Journal of Index Investing, Forthcoming
Posted: 17 Dec 2012 Last revised: 15 Jul 2015
Date Written: December 17, 2012
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  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: Suggested Citation