Short Interest vs. Short Selling

We examine the relation between the monthly reported short interest (the number of shares that are in outstanding short positions) and short selling. We aggregate transaction level short selling into monthly short turnover (a measure of the shorting flow) and find that short turnover and short interest have a correlation of slightly over 45%, which is much lower than our expectations. We also examine whether short interest and/or short selling are informative of future returns. We find that short selling (the shorting flow) shows evidence of predicting returns, while short interest does not. We also examine short selling around the announcement of monthly short interest. We find that short selling increases prior to the announcement of monthly short interest