Short Interest in Exchange-Traded Funds

Financial Markets and Portfolio Management, Vol. 22, No. 4, pp. 381-402, 2008

Posted: 19 Jun 2010

See all articles by Jeff Madura

Jeff Madura

Florida Atlantic University - College of Business

Thanh Ngoc Do

affiliation not provided to SSRN

Date Written: October 4, 2008

Abstract

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. We determine that sector-based ETFs have an abnormally large short interest level, whereas international ETFs have an unusually small short interest level. The level of short interest is larger for ETFs that have a higher trading volume and a lower market capitalization, regardless of the type of ETF assessed. The level of short interest is lower for ETFs representing indexes that have tradable derivatives, but higher for international ETFs representing indexes that have tradable derivatives. We also determine that the level of short interest in an ETF serves as an effective signal of bearish sentiment when considering all ETFs, but is not an effective signal when isolating any particular type of ETF.

Keywords: Exchange-traded funds, Short sales, Short selling

JEL Classification: G11, G12, G14, G15

Suggested Citation

Madura, Jeff and Do, Thanh Ngoc, Short Interest in Exchange-Traded Funds (October 4, 2008). Financial Markets and Portfolio Management, Vol. 22, No. 4, pp. 381-402, 2008, Available at SSRN: https://ssrn.com/abstract=1626296

Jeff Madura (Contact Author)

Florida Atlantic University - College of Business ( email )

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Thanh Ngoc Do

affiliation not provided to SSRN ( email )

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