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We examine the comovements between stock prices of different heavily shorted companies during a short-squeeze incident. Using the recent GameStop trading frenzy as a case study, we employ wavelet coherence… Click to show full abstract
We examine the comovements between stock prices of different heavily shorted companies during a short-squeeze incident. Using the recent GameStop trading frenzy as a case study, we employ wavelet coherence analyses to determine its link with other frequently shorted stocks. We demonstrate a robust positive association between GameStop prices and the performance of high short interest indices. The bubble behavior driven by retail investor herding transmits between different stocks, even from unrelated sectors. Consequently, a single short-squeeze incident may build up into a potentially broader systemic risk, casting doubt on market integrity and stability.
Journal Title: Research in International Business and Finance
Year Published: 2021
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