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). Harvard Institute of Economic Research Discussion Paper No. 2027. 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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