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Short Squeezes and Their Consequences

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  • Schultz, Paul

Abstract

A short squeeze occurs if borrowed shares are recalled and the short seller is unable to find another source of shares. This forces the short seller to terminate a position early. For most stocks, the probability of a short squeeze is very low. Short squeezes, however, are not unusual for the hardest to borrow stocks. For these stocks, trading costs from squeezes are high and have a significant impact on the returns to short selling. For hard-to-borrow stocks, short sellers also miss out on significant abnormal returns because squeezes force them to close positions.

Suggested Citation

  • Schultz, Paul, 2024. "Short Squeezes and Their Consequences," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 59(1), pages 68-96, February.
    • Handle: RePEc:cup:jfinqa:v:59:y:2024:i:1:p:68-96_3
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