Aurora Borealis
14 December 2023 Financial Analysts Journal Volume 80, Issue 2

Short Squeezes

  1. Zhiqian Jiang
  2. Baixiao Liu
  3. Andrew Schrowang
  4. Wei Xu
Using daily short-sale data, the authors analyze the prevalence and persistence of short squeezes and the impact on the stocks being squeezed. Although short squeezes subside in seven trading days on average, other effects can be more significant.
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Abstract

We investigate the prevalence and persistence of short squeezes and the corresponding economic consequences on the stocks being squeezed. Using daily short sale data, we provide evidence that a short squeeze on average subsides within seven trading days and can be driven by both the capital constraint of the short sellers and the short sale constraint of the underlying stocks. The risk of being squeezed is higher during major macroeconomic events. Further analyses reveal that squeezed stocks experience an increase in the demand for and the cost of borrowing the shares and in trading volume, idiosyncratic volatility, and abnormal returns.

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