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Can Shorts Predict Returns? A Global Perspective, Ekkehart Boehmer, Zsuzsa R. Huszar, Yanchu Wang, Xiaoyan Zhang, Xinran Zhang

Research Collection Lee Kong Chian School Of Business

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 nonprohibitive short sale regulations and for stocks with relatively low liquidity, high shorting fees, and low price efficiency.