Short Selling and the Game-Ending Greater Fool
9 Pages Posted: 27 Jan 2020 Last revised: 28 Jan 2020
Date Written: January 14, 2020
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
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