Abstract:
We show that, at a global level, changes in aggregate industry short interest cannot predict
aggregate industry returns. Through the use of Data Explorers’ comprehensive, international
equity lending data for stocks from 24 countries for the period January 2004 to April 2017, we
execute a hedge portfolio strategy that sorts on the previous month’s change in industry short
interest to predict the following month’s industry returns. Our strategy fails to yield both
unadjusted and risk-adjusted returns across a plethora of methodology specifications. Overall, our
results indicate that highly informed short sellers cannot, or do not, assimilate and process global
industry information to generate abnormal trading returns.