Abstract This paper examines global sources of short sellers’ informational advantage by analyzing their trading around public news releases in 38 countries. I find that shorts on negative news have stronger predictive power than nonnews shorts, but only in countries with high-quality public information, more news per stock, and higher illiquidity. These results indicate that some country-level factors discourage short sellers from trading on public information. Short sellers’ informational advantage in most countries seems to arise from their access to private information, as evidenced by their ability to anticipate future negative news and their trading in unison with insiders. (JEL: G12, G14, G15)

Abstract I find that short interest significantly and negatively predicts aggregate stock returns in 24 of 32 countries examined. This predictability survives out-of-sample tests, persists outside of recessions, and is not subsumed by other well-known return predictors. The results indicate that short interest contains valuable information for forecasting international market returns that is distinct and more powerful than that of other available predictors. However, the predictive power of short interest varies over time and across regions. It is higher around economic downturns when margin requirements tighten and in regions where short selling is constrained by regulations or equity lending market frictions. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.