Can Shorts Predict Returns? A Global Perspective
80 Pages Posted: 3 Oct 2015 Last revised: 8 Mar 2021
Date Written: March 8, 2021
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 non-prohibitive short sale regulations and for stocks with relatively low liquidity, high shorting fees, and low price efficiency.
Keywords: Stock Price Efficiency, Liquidity, Market Development, Short Sale Regulations, Short Selling
JEL Classification: G14, G12
Suggested Citation: Suggested Citation