Understanding short selling activity in the hospitality industry

The objective of the study is to examine short selling activity in the hospitality industry. Using short interest from 1996 to 2015 in airline, gambling, hotel and restaurant firms, we analyze their demand and supply factors for short selling. Results from multivariate regression reveal five interesting findings. First, short sellers short their hospitality stocks because of overvaluation, arbitrage and hedging from stock options and convertible bonds. Second, short sellers follow momentum strategies and short more stocks if there is a large divergence in investors’ opinions. Third, for the supply side, the level of institutional ownership has a positive effect on short selling, but its concentration has a negative effect. Fourth, the test results of the sub-periods and individual industries show that the supply side is quite similar but there is a large variation in demand-side variables. Finally, heavily shorted hospitality stocks have poor future one-year performance.