Working Paper: NBER ID: w10434
Authors: Paul Asquith; Parag A. Pathak; Jay R. Ritter
Abstract: Using a longer time period and both NYSE-Amex and Nasdaq stocks, this paper examines short interest and stock returns in more detail than any previous study and finds that many documented patterns are not robust. While equally weighted high short interest portfolios generally underperform, value weighted portfolios do not. In addition, there is a negative correlation between market returns and short interest over our whole period. Finally, inferences from short time periods, such as 1988-1994 when the underperformance of high short interest stocks was exceptional or 1995-2002, when high short interest Nasdaq stocks did not underperform, are misleading.
Keywords: No keywords provided
JEL Codes: G12; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High short interest ratios (G32) | Underperformance of stocks (G17) |
| Equally weighted portfolios of high short interest stocks (G40) | Underperformance (D29) |
| Value-weighted portfolios (G11) | Different level of underperformance (D29) |
| Negative correlation between market returns and short interest (G14) | Observed over study period (C41) |
| High turnover in portfolios (G11) | Capture negative abnormal returns (G14) |
| Short interest ratios falling (G19) | Diminished persistence of negative abnormal returns (G41) |