Did David Win a Battle or the War Against Goliath? Dynamic Return and Volatility Connectedness between the GameStop Stock and the High Short Interest Indices

18 Pages Posted: 18 Mar 2021

See all articles by ⸹ David Y. Aharon

⸹ David Y. Aharon

Ono Academic College

Renatas Kizys

University of Southampton, Southampton Business School, Department of Banking and Finance

Zaghum Umar

Zayed University - College of Business; Netspar

Adam Zaremba

Montpellier Business School; Poznan University of Economics and Business

Date Written: February 18, 2021

Abstract

Can a short-squeeze incident trigger financial contagion over the entire stock markets? The recent GameStop frenzy provides a unique natural experiment to explore this question. In this study, we examine the static and dynamic return and volatility connectedness among the GameStop stock, the U.S. stock market, and the novel market-wide and sectoral short-interest indices. Contrary to anecdotal evidence, we find that the GameStop stock is not a net transmitter, but rather a net recipient of return and volatility spillovers from other companies shorted in the market. This result agrees with a view that short-interest indices provide price discovery for shorted stocks. Therefore, although David might have won a battle against Goliath, he does not seem to win the war.

Keywords: Static and Dynamic Connectedness, GameStop, Short-Interest Index, Stock Returns, Return Volatility, Spillovers, WallStreetBets

JEL Classification: G10, G11, G14, G41

Suggested Citation

Aharon, ⸹ David Y. and Kizys, Renatas and Umar, Zaghum and Zaremba, Adam, Did David Win a Battle or the War Against Goliath? Dynamic Return and Volatility Connectedness between the GameStop Stock and the High Short Interest Indices (February 18, 2021). Available at SSRN: https://ssrn.com/abstract=3788155 or http://dx.doi.org/10.2139/ssrn.3788155

⸹ David Y. Aharon

Ono Academic College ( email )

Kiryat Ono
Israel

Renatas Kizys (Contact Author)

University of Southampton, Southampton Business School, Department of Banking and Finance ( email )

Room 1013, Building 4
Highfield Campus
Southampton, SO17 1BJ
United Kingdom
+442380598612 (Phone)

HOME PAGE: http://https://www.southampton.ac.uk/business-school/about/staff/rk1y18.page

Zaghum Umar

Zayed University - College of Business ( email )

P.O. Box 4783
Abu Dhabi
United Arab Emirates

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Adam Zaremba

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, Occitanie 34000
France

Poznan University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875
Poland

HOME PAGE: http://adamzaremba.pl

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