Publication Type
Journal Article
Version
submittedVersion
Publication Date
2-2022
Abstract
We provide novel evidence that arbitrageurs use exchange-traded funds (ETFs) as an avenue to circumvent short-sale constraints at the stock level. Using a large sample of U.S. equity ETF holdings, we document that shorting activity on ETFs rises with the difficulty of shorting underlying stocks. Stocks heavily shorted via their holding ETFs underperform those that are lightly shorted. The return predictability of ETF shorting is distinct from stock-level shorting measures and is concentrated among stocks that face severe arbitrage constraints. These findings suggest that ETFs allow arbitrageurs to target overpriced stocks that are otherwise difficult to short.
Keywords
ETFs, Short Selling, Equity Lending, Limits to Arbitrage
Discipline
Finance | Finance and Financial Management
Research Areas
Finance
Publication
Review of Asset Pricing Studies
First Page
1
Last Page
71
ISSN
2045-9920
Identifier
10.2139/ssrn.2836518
Publisher
Oxford University Press (OUP): Policy F - Oxford Open Option D - RCUK
Citation
LI, Frank Weikai and ZHU, Qifei.
Short selling ETFs. (2022). Review of Asset Pricing Studies. 1-71.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5315
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.