Publication details

What makes investors short sell ETFs?



Year of publication 2016
Type Article in Periodical
Magazine / Source Acta academica karviniensia
MU Faculty or unit

Faculty of Economics and Administration

Field Management and administrative
Keywords abnormal returns; exchange-traded funds; short sale
Description Short selling exchange-traded funds (ETFs) has become a common means of speculating or hedging in response to pessimistic expectations about a specific market or sector, as the short interest of ETFs is more than 10 times that of individual stocks, on average. The study determines the specific characteristics of globally available ETFs, which influence the level of short interest (such as trading volume, price stability, market capitalization, expense ratio, geographical focus, investment strategy and the availability of derivatives for the underlying index), and tests three most common short sale motivation hypotheses (overpricing, arbitrage and hedging and transaction costs). Using the monthly short interest ratio and the characteristics of ETFs traded in the US market, empirical evidence to support all three short sale motivation hypotheses is provided. The possibility of achieving abnormal returns based on previous levels of short sale is also tested.
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