How informed are international short sellers? Global and local industry concentration of short sellers

Abstract

Internationally, documenting the information content from short sellers at the stock level is rather challenging because of various direct and indirect short sale constraints as suggested by Boehmer et al. (2022). To account for stock level short sale constraints and the cross-country variation in short sale feasibility, we focus on short sellers’ information at the aggregate industry and country levels and show that the value-weighted portfolio consisting of stocks from the topmost shorted and top three most shorted industries are associated with 45 bps and 42 bps lower returns over the next 20 days in a sample of 37 countries. The aggregate industry level also shows significant negative information from short sellers in more countries compared to Boehmer et al. (2022), especially in less developed markets. In addition to the industry information, we also find market level information from short sellers and show that high short selling predicts lower future market returns when short sellers target the country’s largest industries. We furthermore document evidence of short sellers' role in global information propagation.