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Short Interest and Aggregate Stock Returns: International Evidence

Author

Listed:
  • Arseny Gorbenko
  • Marcin Kacperczyk

Abstract

I find that short interest significantly and negatively predicts aggregate stock returns in 24 of 32 countries examined. This predictability survives out-of-sample tests, persists outside of recessions, and is not subsumed by other well-known return predictors. The results indicate that short interest contains valuable information for forecasting international market returns that is distinct and more powerful than that of other available predictors. However, the predictive power of short interest varies over time and across regions. It is higher around economic downturns when margin requirements tighten and in regions where short selling is constrained by regulations or equity lending market frictions.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Arseny Gorbenko & Marcin Kacperczyk, 2023. "Short Interest and Aggregate Stock Returns: International Evidence," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 13(4), pages 691-733.
    • Handle: RePEc:oup:rasset:v:13:y:2023:i:4:p:691-733.
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    File URL: http://hdl.handle.net/10.1093/rapstu/raad007
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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