54 Pages Posted: 15 Mar 2012 Last revised: 20 Mar 2023
Date Written: October 6, 2021
We investigate the prevalence and persistence of short squeezes and the corresponding economic consequences on the stocks being squeezed. Using daily short sale data, we provide evidence that a short squeeze on average subsides within seven trading days and can be driven by both the capital constraint of the short sellers and the short sale constraint of the underlying stocks. The risk of a stock being squeezed is higher during recessions. Further analyses reveal that squeezed stocks experience an increases in the demand for and the cost of borrowing the shares and in trading volume, idiosyncratic volatility, and abnormal returns.
Keywords: Short Selling; Short Squeeze; Short Sale Constraint; Price Reversals
JEL Classification: G12, G14
Suggested Citation: Suggested Citation