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Phantom of the Opera: ETF Shorting and Shareholder Voting

Author

Listed:
  • Richard B. Evans

    (Darden School of Business, University of Virginia, Charlottesville, Virginia 22906)

  • Oğuzhan Karakaş

    (Centre for Endowment Asset Management, Cambridge Judge Business School, University of Cambridge, Cambridge CB2 1AG, United Kingdom)

  • Rabih Moussawi

    (Villanova School of Business, Villanova University, Villanova, Pennsylvania 19085; and Wharton Research Data Services, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Michael Young

    (Robert J. Trulaske, Sr. College of Business, University of Missouri, Columbia, Missouri 65211)

Abstract

The short-selling of exchange-traded funds (ETFs) creates “phantom” ETF shares, trading at market prices, with cash flow rights but no associated voting rights. Unlike regular ETF shares backed by underlying securities, which are voted as directed by the ETF sponsor, phantom ETF shares are typically hedged by the underlying basket as part of market-making activities and result in a significant number of sidelined votes of underlying securities. We find that increases in phantom shares for the corresponding underlying securities are associated with decreases in the number of proxy votes cast and increases in broker nonvotes.

Suggested Citation

  • Richard B. Evans & Oğuzhan Karakaş & Rabih Moussawi & Michael Young, 2026. "Phantom of the Opera: ETF Shorting and Shareholder Voting," Management Science, INFORMS, vol. 72(2), pages 893-914, February.
    • Handle: RePEc:inm:ormnsc:v:72:y:2026:i:2:p:893-914
    DOI: 10.1287/mnsc.2023.01567
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