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An Investigation of the Informational Role of Short Interest in the Nasdsaq Market

40 Pages Posted: 1 Sep 2000  

Hemang Desai

Southern Methodist University - Cox School of Business

S. Ramu Thiagarajan

Mellon Capital Management Corporation

K. Ramesh

Rice University

Bala V. Balachandran

Northwestern University - Kellogg School of Management

Date Written: June 2000

Abstract

This paper examines the informational role of short interest in the Nasdaq market. Using the population of monthly short interest data over the period of June 1988 through December 1994 we find that firms with high short interest experience significant negative abnormal returns ranging from -0.76% to -1.13% per month during the period over which they are heavily shorted. In contrast to results in Aitken et al. (1998) that show that information in short interest is incorporated quickly into prices for Australian stocks, we find that information in short interest is incorporated gradually into prices for Nasdaq stocks. The negative excess returns are increasing in the level of short interest indicating that a higher level of short interest is a stronger signal. Consistent with short interest being a bearish signal, we find that the heavily shorted firms get delisted with a higher frequency relative to their size and industry matched control firms.

Keywords: Short interest, information, stock returns

JEL Classification: G10, D82, G14

Suggested Citation

Desai, Hemang and Thiagarajan, S. Ramu and Ramesh, K. and Balachandran, Bala V., An Investigation of the Informational Role of Short Interest in the Nasdsaq Market (June 2000). Available at SSRN: https://ssrn.com/abstract=232908 or http://dx.doi.org/10.2139/ssrn.232908

Hemang Desai (Contact Author)

Southern Methodist University - Cox School of Business ( email )

Cox School of Business
6212 Bishop Blvd.
Dallas, TX 75275-0333
United States
214-768-3185 (Phone)
214-768-4099 (Fax)

S. Thiagarajan

Mellon Capital Management Corporation ( email )

595 Market Street
Suite 3000
San Francisco, CA 94105
United States
415-975-3512 (Phone)

K. Ramesh

Rice University ( email )

236 McNair Hall
Jones Graduate School of Business
Houston, TX 77005
United States
713.348.5380 (Phone)
713.348.6296 (Fax)

Bala Balachandran

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-2678 (Phone)
847-467-1202 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/Faculty/Directory/Balachandran_Bala.aspx

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