Short Squeeze Uncertainty and Skewness

38 Pages Posted: 16 Aug 2019 Last revised: 2 Feb 2021

See all articles by Ilias Filippou

Ilias Filippou

Washington University in St. Louis - John M. Olin Business School

Pedro Angel Garcia-Ares

Instituto Tecnológico Autónomo de México (ITAM)

Fernando Zapatero

Questrom School of Business, Boston University

Date Written: August 13, 2019

Abstract


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

Filippou, Ilias and Garcia-Ares, Pedro Angel and Zapatero, Fernando, Short Squeeze Uncertainty and Skewness (August 13, 2019). Available at SSRN: https://ssrn.com/abstract=3437085 or http://dx.doi.org/10.2139/ssrn.3437085

Ilias Filippou (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Pedro Angel Garcia-Ares

Instituto Tecnológico Autónomo de México (ITAM)

Av. Camino a Sta. Teresa 930
Col. Héroes de Padierna
Mexico City, D.F. 01000, Federal District 01080
Mexico

Fernando Zapatero

Questrom School of Business, Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-353-3631 (Phone)

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