ETF Short Interest and Future Returns

Posted in Short Selling

 

Prior research indicates that individual stocks with high short interest relative to shares outstanding (short interest ratio) tend to underperform. Do this finding hold for exchange-traded funds (ETF)? In their December 2012 paper entitled “Why Does ETF Short Selling Provide a Different Signal?”, Christopher Hughen and Xiaoyu Ma investigate whether short interest ratio metrics predict future returns for ETFs. Their return measurement interval is from one mid-month short position settlement date (15th day of each month or the preceding business day) to the next. They define abnormal monthly return as ETF return minus the MSCI World Index return. Using so specified monthly short interest and total return data for 21 iShares single-country funds trading as of February 2002 from inception through December 2011 (3,419 fund-months), they find that: (more…)

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