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Short squeeze risk and price impact

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  • Kim, Hyeonjun
  • Ryu, Doojin

Abstract

We examine the price impact in a market with asymmetric information but with mandatory public disclosure of informed investors’ short positions. In equilibrium, short sellers strategically adjust order flows to deter potential short-squeeze attacks. The price impact of overpriced stocks is positively (negatively) associated with margin call buffer (risk).

Suggested Citation

  • Kim, Hyeonjun & Ryu, Doojin, 2025. "Short squeeze risk and price impact," Finance Research Letters, Elsevier, vol. 85(PD).
    • Handle: RePEc:eee:finlet:v:85:y:2025:i:pd:s1544612325014023
    DOI: 10.1016/j.frl.2025.108147
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    References listed on IDEAS

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    1. Bang, Jeongseok & Kang, Yeonchan & Ryu, Doojin, 2024. "Potential pricing factors in the Korean market," Finance Research Letters, Elsevier, vol. 67(PB).
    2. Thummim Cho & Christopher Polk, 2024. "Putting the Price in Asset Pricing," Journal of Finance, American Finance Association, vol. 79(6), pages 3943-3984, December.
    3. Xiaoxia Lou & Tao Shu, 2017. "Price Impact or Trading Volume: Why Is the Amihud (2002) Measure Priced?," The Review of Financial Studies, Society for Financial Studies, vol. 30(12), pages 4481-4520.
    4. Duong, Truong X. & Huszár, Zsuzsa R. & Yamada, Takeshi, 2015. "The costs and benefits of short sale disclosure," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 124-139.
    5. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    6. Allen, Franklin & Haas, Marlene D. & Nowak, Eric & Tengulov, Angel, 2021. "Market efficiency and limits to arbitrage: Evidence from the Volkswagen short squeeze," Journal of Financial Economics, Elsevier, vol. 142(1), pages 166-194.
    7. Kim, Karam & Ryu, Doojin & Yu, Jinyoung, 2024. "Star analyst activities and stock price synchronicity: Korean equity market reforms," Emerging Markets Review, Elsevier, vol. 61(C).
    8. Lorien Stice‐Lawrence & Yu Ting Forester Wong & Wuyang Zhao, 2025. "Short Squeezes After Short‐Selling Attacks," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 63(3), pages 1187-1236, June.
    9. Schultz, Paul, 2024. "Short Squeezes and Their Consequences," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 59(1), pages 68-96, February.
    10. Galema, Rients & Gerritsen, Dirk, 2019. "The effect of the accidental disclosure of confidential short sales positions," Finance Research Letters, Elsevier, vol. 28(C), pages 87-94.
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    Cited by:

    1. Kim, Hyeonjun & Ryu, Doojin, 2025. "Decomposing momentum: Fundamentals versus persistent mispricing," Finance Research Letters, Elsevier, vol. 86(PF).

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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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