The big picture: The industry effect of short interest

Chune Young Chung, Chang Liu and Kainan Wang

International Review of Financial Analysis, 2021, vol. 76, issue C

Abstract: We examine whether industry-level short interest predicts industry stock returns and find that the former is negatively associated with the latter. Furthermore, this predictive ability is more pronounced in industries with higher information asymmetry surrounding firms, suggesting that either short sellers' access to private information or their superior information processing skills are important. We also find that this predictive ability is stronger when the short-sale constraint is more binding and when the economic condition is challenging. Overall, our results imply that short sellers' collective activities convey important industry information, leading to predictable and profitable industry portfolios.

Keywords: Industry information; Industry-level short interest; Industry performance; Industry rotation; Portfolio rebalancing (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:76:y:2021:i:c:s1057521921001010

DOI: 10.1016/j.irfa.2021.101760

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