Phantom of the Opera: ETF Shorting and Shareholder Voting

71 Pages Posted: 26 Mar 2019 Last revised: 1 Jun 2021

See all articles by Richard B. Evans

Richard B. Evans

University of Virginia - Darden School of Business

Oğuzhan Karakaş

Cambridge Judge Business School - Finance Subject Group; European Corporate Governance Institute (ECGI)

Rabih Moussawi

Villanova University - Department of Finance; University of Pennsylvania - The Wharton School

Michael Young

University of Missouri at Columbia - Department of Finance

Date Written: May 19, 2021

Abstract

The short-selling of exchange-traded funds (ETFs) creates "phantom" ETF shares, trading at ETF market prices, with cash flows rights but no associated voting rights. Unlike regular ETF shares backed by the ETF's underlying securities which are voted as directed by the ETF sponsor, phantom ETF shares are backed by collateral that is not voted. Introducing a novel measure of phantom ETF shares for the corresponding underlying securities, we find that increases in phantom shares are associated with decreases in number of proxy votes cast (for and against), and increases in broker non-votes, the voting premium, and value-reducing acquisitions.

Keywords: Exchange-Traded Funds, Proxy Voting, Voting Premium, Short Interest, Operational Shorting, Authorized Participants, Collateral, Broker

JEL Classification: G11, G12, G14, G23, G34

Suggested Citation

Evans, Richard B. and Karakaş, Oğuzhan and Moussawi, Rabih and Young, Michael, Phantom of the Opera: ETF Shorting and Shareholder Voting (May 19, 2021). European Corporate Governance Institute – Finance Working Paper No. 763/2021, Available at SSRN: https://ssrn.com/abstract=3345799 or http://dx.doi.org/10.2139/ssrn.3345799

Richard B. Evans

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4030 (Phone)
434-243-7680 (Fax)

HOME PAGE: http://faculty.darden.virginia.edu/evansr/

Oğuzhan Karakaş

Cambridge Judge Business School - Finance Subject Group ( email )

University of Cambridge
Trumpington St.
Cambridge, CB2 1AG
United Kingdom

HOME PAGE: http://jbs.cam.ac.uk/faculty-research/faculty-a-z/oguzhan-karakas/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://ecgi.global/users/o%C4%9Fuzhan-karaka%C5%9F

Rabih Moussawi

Villanova University - Department of Finance ( email )

800 E Lancaster Ave
Bartley Hall, 2051
Villanova, PA 19085
United States

HOME PAGE: http://www.homepage.villanova.edu/rabih.moussawi

University of Pennsylvania - The Wharton School ( email )

United States

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

Michael Young (Contact Author)

University of Missouri at Columbia - Department of Finance ( email )

Columbia, MO 65211
United States

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