Aggregate Short Interest and Market Valuations

12 Pages Posted: 30 Jul 2004

See all articles by Owen A. Lamont

Owen A. Lamont

Harvard University - Department of Economics

Jeremy C. Stein

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2003

Abstract

We examine some basic data on the evolution of aggregate short interest, both during the dot-com era, and at other times in history. Total short interest moves in a countercyclical fashion. For example, short interest in NASDAQ stocks actually declines as the NASDAQ index approaches its peak. Moreover, this decline does not seem to reflect a substitution away from outright short-selling and towards put options, as the ratio of put-to-call volume displays the same countercyclical tendency. The evidence suggests that: i) arbitrageurs are reluctant to bet against aggregate mispricings; and ii) short-selling does not play a particularly helpful role in stabilizing the overall stock market.

Suggested Citation

Lamont, Owen A. and Stein, Jeremy C., Aggregate Short Interest and Market Valuations (December 2003). Available at SSRN: https://ssrn.com/abstract=569876 or http://dx.doi.org/10.2139/ssrn.569876

Owen A. Lamont

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

Jeremy C. Stein (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-496-6455 (Phone)
617-496-7352 (Fax)

HOME PAGE: http://post.economics.harvard.edu/faculty/stein/stein.html

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