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The Effects of Short Interest on the Likelihood of Short Squeeze

Author

Listed:
  • Dominik Svoboda

    (Faculty of Business and Economics, Mendel University in Brno, Czech Republic)

  • Svatopluk Kapounek

    (Faculty of Business and Economics, Mendel University in Brno, Czech Republic)

  • Peter Albrecht

    (Faculty of Business and Economics, Mendel University in Brno, Czech Republic)

Abstract

Our paper investigates the determinants of short squeeze occurrences, a market anomaly wherein rapid price increases force short sellers to cover their positions, amplifying upward momentum. We focus on the predictive role of short interest, investor attention, and institutional ownership, employing rare-event logistic regression to address the infrequency of these events. Our results show that elevated short interest and spikes in investor attention significantly increase the likelihood of a short squeeze, while institutional ownership has a stabilizing effect. These findings suggest that short squeezes are not random episodes but can be systematically anticipated based on observable market signals. The study offers practical implications for traders, risk managers, and regulators seeking to better understand and monitor the conditions under which short squeezes are likely to occur.

Suggested Citation

  • Dominik Svoboda & Svatopluk Kapounek & Peter Albrecht, 2025. "The Effects of Short Interest on the Likelihood of Short Squeeze," MENDELU Working Papers in Business and Economics 2025-104, Mendel University in Brno, Faculty of Business and Economics.
    • Handle: RePEc:men:wpaper:104_2025
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    References listed on IDEAS

    as
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    5. Svatopluk Kapounek & Zuzana Kučerová & Evžen Kočenda, 2022. "Selective Attention in Exchange Rate Forecasting," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 23(2), pages 210-229, May.
    6. Nicolae B. Gârleanu & Stavros Panageas & Geoffery X. Zheng, 2021. "A Long and a Short Leg Make For a Wobbly Equilibrium," NBER Working Papers 28824, National Bureau of Economic Research, Inc.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    squeeze effect; rare-logit; short interest; investor attention;
    All these keywords.

    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
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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