THE RETURN PREDICTABILITY OF INDUSTRY SHORT INTERESTS: INTERNATIONAL EVIDENCE

Abstract

Numerous studies have examined the informational content of short selling at the individual stock level, but the global implications of industry short interest on future industry and country returns are relatively unknown. In this study, daily data is aggregated among 34 countries from July 2006 to December 2014 to examine the relative performance of industries that face comparatively higher short interest levels over the next five days, one month and three months. Industries with the highest aggregate shorted values are found to earn –0.248% industry returns, while a single percentage point increase in short interest concentration is associated with a –3.091% change in country returns over the next three months on average. Overall, the results suggest that short sellers’ actions in targeting certain industries have tangible and predictable effects on subsequent market returns, and that the presence of more concentrated industries cause this effect to become stronger.