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How prevalent are short squeezes? Evidence from the US and Europe

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  • Allen, Franklin
  • Haas, Marlene
  • Pirovano, Matteo
  • Tengulov, Angel

Abstract

We develop a novel measure to identify short squeezes triggered by sharp price increases. These “market squeezes” drive short sellers to close their positions early. To provide a comprehensive analysis of short squeeze dynamics, we also examine lender squeezes, identified through share recalls. We find that stock-day short-squeeze events are rare and short-lived. However, the quarterly proportion of unique stocks experiencing market squeezes is 9.9% (12.3%) in the US (EU), compared to 8.7% (5.4%), for lender squeezes. Our analysis shows that market and lender squeezes are driven by different determinants. We find that market squeezes impair price discovery, consistent with significant declines in short interest after these events. This contrasts with lender squeezes, after which short interest remains stable or increases, and price discovery remains unaffected.

Suggested Citation

  • Allen, Franklin & Haas, Marlene & Pirovano, Matteo & Tengulov, Angel, 2025. "How prevalent are short squeezes? Evidence from the US and Europe," Journal of Banking & Finance, Elsevier, vol. 176(C).
    • Handle: RePEc:eee:jbfina:v:176:y:2025:i:c:s0378426625000561
    DOI: 10.1016/j.jbankfin.2025.107436
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    1. Jacobs, Heiko & Lauber, Alexander & Müller, Sebastian, 2025. "Bearish bets and the press: On the relation between short interest and media tone," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 104(C).

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • 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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