Misplaced optimism about Europe drove short-sellers last month.

The appetite for riskier investments was alive and well last month, and dropping short interest on a number of heavily traded ETFs confirmed that. That said, it’s a dynamic that seems so “last month,” as storm clouds over the eurozone are again casting a shadow of gloom on the global outlook.

The number of shares being shorted in the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM) declined by 26.75 percent after rising by almost 56 percent in September, according to data compiled by Index Universe.

That sharp drop rubber-stamped the fact that EEM was last month’s most popular ETF, pulling in $3.77 billion in fresh assets, as we wrote about in a piece titled “Investors Brave Equities.”

Short-sellers now look like they suffered from misplaced optimism that eurozone policymakers would be able to take the necessary steps to resolve the continent’s debt crisis. The iShares MSCI EAFE Index Fund (NYSEArca: EFA), which focuses on the developed world outside of the U.S. and Canada, didn’t even make it to the top 10 on our “Big Bets” table, after short interest rose 54 percent in September.

In another sign of hopefulness, short-seller even regained their appetite for shorting gold, a traditional safe haven in times of economic distress. Shorts on the SPDR Gold Shares (NYSEArca: GLD) went up by 7.15 percent after dropping by almost a third in September.

FXE Telling Bearish Tale

That’s not to say that short-sellers weren’t still doing last month what they’re famous for; namely, sniffing out problems and trying to profit from them.

Short interest on the CurrencyShares Euro ETF (NYSEArca: FXE) rose more than 19 percent last month, after rising just shy of 4 percent in the prior month.

The ETF is a long bet on the euro versus the dollar and, to the extent the euro’s fortunes ebb and flow in line with the latest headlines regarding the eurozone’s ongoing sovereign debt crisis, the rising short interest in FXE last month now looks prescient.

Data is believed to be accurate; however, transient market data is often subject to subsequent revision and correction by the exchanges.