Phantom of the Opera: ETF Shorting and Shareholder Voting
50 Pages Posted: 26 Mar 2019 Last revised: 10 Sep 2019
Date Written: March 3, 2019
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 underlying securities of the ETF and voted as directed by the sponsor, phantom ETF shares are backed by collateral that is not voted. Introducing a novel measure of phantom shares both of the ETF and 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 vote premium, and value-reducing acquisitions.
Keywords: Exchange-Traded Funds, Proxy Voting, Vote Premium, Short Interest, Operational Shorting, Authorized Participants
JEL Classification: G1, G12, G14, G23, G34
Suggested Citation: Suggested Citation