Short Squeeze Uncertainty and Skewness
38 Pages Posted: 16 Aug 2019 Last revised: 2 Feb 2021
Date Written: August 13, 2019
Short squeezes often lead to sudden, large increases in stock prices. Using a novel measure of the likelihood of short squeezes we show that uncertainty about the probability of a short squeeze is a proxy for right-skewness –characteristic of lotteries– and used by skewness-seeking investors, who favor call options in their quest. In particular, these investors are willing to pay a premium for the upside potential of these lottery-like securities, as it is the case for other lottery-like securities identified in the literature.
Keywords: Short Squeeze, Anomalies, limits to arbitrage
JEL Classification: G11, G12, G14, G32
Suggested Citation: Suggested Citation