Finance professor Matthew Ringgenberg and his team have developed a short-sale index that is “the strongest known predictor of aggregate stock returns,” according to their research published in the Journal of Financial Economics.
The index collects short sales across securities and calculates the percentage of outstanding shares sold short at the market level.
The version based on raw data shows an uptick in short interest to 4.6 per cent around the time COVID-19 first ramped up, back in March. The index has since settled back to 4.3 per cent, as of November.
By comparison, it trended upward to 9 per cent just prior to the big stock-market crash of 2008. These results pertain to the U.S. stock market but should still be of interest to Canadian investors given the correlation between U.S. and Canadian stocks.