What Canadian companies have a high percentage of their float sold short? Let look at large-cap companies first:
Next, the mid-cap companies:
And then the small-cap companies:
Short squeezes
While a large short position may be a red flag warning that a stock could underperform, sometimes short squeezes can arise and the price of a stock is driven higher by short sellers rushing to buy back and return the shares they borrowed. Triggers that may tip short sellers into panic buying include: a strong uptrend in the stock price, escalating borrowing costs and dwindling trading volumes in a stock.
Recent academic research on short selling
In their May 6 paper Betting Against ESG Sinners: Evidence From Short Selling Around the World, researchers from the University of Zurich and Austrian Institute of Technology find that short sellers mostly did not anticipate declines in stock prices caused by adverse news on environmental, social, and governance (ESG) issues. Examples of misses were: the Volkswagen emissions scandal in 2015 and the Facebook-Cambridge Analytica furor in 2018.
Short selling of ETFs
Short interest in exchange-traded funds (ETFs) can highlight sector- and industry-wide issues.
Campaigns by activist short sellers
The Association of Certified Fraud Examiners recently reported that auditors uncover fraud only 3 per cent of the time (as reported in the Financial Times of London). Different sources have observed that the track record for regulators is not stellar either. On the other hand, activist short sellers and their bearish publications have caught many frauds.
Publicizing fraud can be messy and provoke heated acrimony but it also has the benefit of promoting deterrence. Auditors and regulators just don’t have the same incentives to expose fraud as short sellers do, namely a substantial monetary windfall if they uncover malfeasance.
Do short sellers anticipate quarterly earnings released by companies?
To examine the thesis put forward by several academics that short sellers may be able to anticipate quarterly earnings reports, public companies were screened in late April for substantial decreases or increases in short sales ahead of their first-quarter earnings reports in May. Five such companies were found. Here are the results.
As this “back-of-the-envelope” test shows, all five had prices changes in the direction foreshadowed by short-selling activity. But one sample period is not conclusive. We hope to re-run the experiment for forthcoming quarterly reports to see if a consistent pattern emerges.
End note
S3 Partners was the main data source for short sales. It was selected because Canada has many companies interlisted on exchanges in the United States, and S3 Partners sums short positions (currency-adjusted) across both countries. Other data sources for short sales data fail to do this. Also, note that short positions, regardless of data source, may not be purely bearish bets because of trades made for hedging/arbitrage reasons.
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