Phantom of the Opera: ETF Shorting and Shareholder Voting
Richard B. Evans, Oğuzhan Karakaş, Rabih Moussawi, Michael Young
Management Science · 2026 · Volume 72 · Issue 2
Abstract
The short-selling of exchange-traded funds (ETFs) creates “phantom” ETF shares, trading at market prices, with cash flow rights but no associated voting rights. Unlike regular ETF shares backed by underlying securities, which are voted as directed by the ETF sponsor, phantom ETF shares are typically hedged by the underlying basket as part of market-making activities and result in a significant number of sidelined votes of underlying securities. We find that increases in phantom shares for the corresponding underlying securities are associated with decreases in the number of proxy votes cast and increases in broker nonvotes. This paper was accepted by Lukas Schmid, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.01567 .
Keywords
exchange-traded funds, proxy voting, broker nonvote, short interest, operational shorting, authorized participants, ETF market making, voting of hedged positions, empty voting
Enable JavaScript for citation tools and additional paper interactions.