Short sellers gravitate toward the more liquid share class in dual-class stocks, prioritizing liquidity over voting rights or price premiums. Explore how this trend impacts market dynamics.

• Some companies have two classes of shares (e.g., Class A and Class B) that represent equivalent ownership in the company. However, due to factors such as index ownership, float size or market capitalization, voting rights, and liquidity, these shares trade differently.

• We analyzed 10 S&P stock where both share classes are actively traded.

• The variables we examined included voting differences, price premiums, the percentage of float for each stock, and the short interest as a percentage of float.

• The strongest relationship, with a correlation close to 1, is that the larger share class is shorted more as a percentage of float. Short sellers prioritize liquidity above all else. This trend holds consistently.

Tables and Graphs. Black Apps, Home, Table

• The point in the top right corner is Zillow (Z), Z is shorted 10.9% of float and ZG 2.3% for a difference of 8.6%, and Z represents 80% of the float of the two shares.

• The other relationships are weaker, with correlations ranging from 0.15 to 0.23.

• Stocks with a higher float tend to trade at a premium. This may be due to the stock being included in an index, with long investors also valuing liquidity.

• The voting shares tend to be a smaller percent of the float.

• Voting shares tend to trade at a premium

• As noted by many market participants, FOX has voting rights and trades at a discount compared to FOXA, which does not have voting rights. Consequently, FOXA is more shorted, skewing much of the data.

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