Short Squeeze Uncertainty and Skewness

34 Pages Posted: 16 Aug 2019

See all articles by Ilias Filippou

Ilias Filippou

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

Pedro 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. We show that uncertainty about the likelihood of a short squeeze is a proxy for skewness-seeking investors, and they use 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 is the case for other lottery-like securities identified in the literature. In addition, high short squeeze uncertainty causes deviations from the put–call parity condition in the direction dictated by the overpricing of the call options.

Keywords: Short Squeeze, Anomalies, limits to arbitrage

JEL Classification: G11, G12, G14, G32

Suggested Citation

Filippou, Ilias and Garcia-Ares, Pedro 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 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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