What makes investors short sell ETFs

Short selling exchange-traded funds( ETFs) has become a common means of speculating or hedging in response to pessimistic expectations about a specific market or sector, as the short interest of ETFsis more than 10 times that of individual stocks, on average. The study determines the specific characteristics of globally available ETFs, which influence the level of short interest (such as trading volume, price stability, market capitalization, expense ratio, geographical focus, investment strategyand the availability of derivatives for the underlying index), and tests three most common short sale motivation hypotheses (overpricing, arbitrageand hedging and transaction costs). Using the monthly short interest ratioand the characteristics of ETFstraded in the US market, empirical evidence to support all three short sale motivation hypotheses is provided. The possibility of achieving abnormal returnsbased on previous levels of short sale is also tested.