Can Shorts Predict Return? A Global Perspective

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 utilization ratio measures have the most robust predictive power for future stock returns in the global capital market. Significant cross-country and cross-firm differences are found in the predictive power of alternative short sale measures. The predictive power of shorts is stronger in countries with non-prohibitive short sale regulations and for stocks with relatively low liquidity, high shorting fees, and low price efficiency