The big picture: the industry effect of short interest

37 Pages Posted: 5 May 2021

See all articles by Chune Young Chung

Chune Young Chung

Chung-Ang University - College of Business & Economics

Chang Liu

California State University, Sacramento

Kainan Wang

University of Toledo

Date Written: May 2, 2021

Abstract

We examine whether industry-level short interest predicts industry stock returns and find that the former is negatively associated with the latter. Furthermore, this predictive ability is more pronounced in industries with higher information asymmetry surrounding firms, suggesting that either short sellers' access to private information or their superior information processing skills are important. We also find that this predictive ability is stronger when the short-sale constraint is more binding and when the economic condition is challenging. Overall, our results imply that short sellers' collective activities convey important industry information, leading to predictable and profitable industry portfolios.

Keywords: Industry information, Industry-level short interest, Industry performance, Industry rotation, Portfolio rebalancing

JEL Classification: G11

Suggested Citation

Chung, Chune Young and Liu, Chang and Wang, Kainan, The big picture: the industry effect of short interest (May 2, 2021). International Review of Financial Analysis, Vol. 76, No. July, 2021, Available at SSRN: https://ssrn.com/abstract=3838135

Chune Young Chung

Chung-Ang University - College of Business & Economics ( email )

84 Heuk-suk Ro
Seoul
Korea, Republic of (South Korea)

Chang Liu (Contact Author)

California State University, Sacramento ( email )

6000 J Street
Sacramento, CA 95819-6082
United States

Kainan Wang

University of Toledo ( email )

Neff Department of Finance
Mail Stop 103
Toledo, OH 43606
United States

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