Short interest can indicate investor sentiment about a market’s direction. The higher the short interest, the more investors expect a market downturn, because the value of short positions increase as stocks fall, and vice versa.
ETFs are exempt from the U.S. uptick rule which restricts short sales to when the price of a particular stock is higher than the last trade (an uptick), or when there is no change in the last trade price (a zero uptick or zero plus tick).
This makes ETFs useful trading tools for hedge funds, where long/short trading strategies are a major investment style in the hedge fund industry.
"Short interest in U.S.-listed ETFs has steadily increased since the beginning of 2005," Morgan Stanley said in a research note. Short interest stood at 18 percent of shares outstanding, a 36 percent rise since the end of 2004.
ETFs have grown rapidly in recent years and now account for about a quarter of the entire underlying trading volume in stocks on U.S. exchanges.
These funds can offer investors a cheap and easy way to get exposure to all or part of an index such as the British FTSE 100, raise overall market liquidity and earn additional fee income for exchanges.
Fonte: Reuters
