Short Selling and the Game-Ending Greater Fool

9 Pages Posted: 27 Jan 2020 Last revised: 28 Jan 2020

See all articles by J.B. Heaton

J.B. Heaton

One Hat Research LLC; J.B. Heaton, P.C.

Date Written: January 14, 2020

Abstract

Equity short sellers face a risk that an acquirer - called here the "game-ending greater fool" - will acquire the short target at a premium to the short price even if the short seller is correct about overvaluation. If short sellers account for this risk, even partially, then prices may be too high even in markets that allow unrestricted short selling.

Keywords: short interest, short sellers, limits of arbitrage, optimism

Suggested Citation

Heaton, J.B., Short Selling and the Game-Ending Greater Fool (January 14, 2020). Available at SSRN: https://ssrn.com/abstract=3518872 or http://dx.doi.org/10.2139/ssrn.3518872

J.B. Heaton (Contact Author)

One Hat Research LLC ( email )

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J.B. Heaton, P.C. ( email )

Chicago, IL
United States
(312) 487-2600 (Phone)

HOME PAGE: http://jbheaton.com

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