This study examines the variation in aggregate short-selling by foreigners, individuals, and institutional investors in relation to market return and other market-wide variables in the Korean stock market. First, we find that aggregate short-selling has strong seasonal components. In contrast to the existing literature, which shows contrarian-style short-selling at the stock level, we find momentum-style short-selling by foreigners and individual investors at the aggregate level. That is, they significantly increase their short-selling following a short-term down market. In addition, we show that past US market return is negatively related to aggregate short-selling by foreign investors. Vector-autoregression and impulse-response analyses reveal that aggregate short-selling is significantly affected by changes in market return, but not vice versa.
