Can shorts predict returns? A global perspective

• Main Authors: BOEHMER, Ekkehart, HUSZAR, Zsuzsa R., WANG, Yanchu, ZHANG, Xiaoyan, ZHANG, Xinran
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: stock price efficiency; liquidity; market development; short sale regulation; short selling; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/7006; https://ink.library.smu.edu.sg/context/lkcsb_research/article/8005/viewcontent/ShortsPredictReturns_2021_sv.pdf
• Institution: Singapore Management University

Using multiple short-sale measures, we examine the predictive power of short sales for future stock returns in 38 countries from July 2006 to December 2014. We find that the days-to-cover ratio and the utilization ratio measures have the most robust predictive power for future stock returns in the global capital market. Our results display significant cross-country and cross-firm differences in the predictive power of alternative short-sale measures. The predictive power of shorts is stronger in countries with nonprohibitive short sale regulations and for stocks with relatively low liquidity, high shorting fees, and low price efficiency.