Title

Why All the Interest in Short Interest?

Document Type

Article

Publication Date

1987

Abstract

Market reaction to the release of short interest data is examined. It is hypothesized that, in efficient markets, prices will reflect both negative and positive implications inherent in a large short position. If a large short interest actually is systematically bullish or bearish, arbitrageurs would take advantage of this. This renders suspect a successful trading rule employing short interest information that consistently "beats the market." The data used consist of the short interest figures published each month in the Wall Street Journal for the period January 1975-December 1983. The results show that a large increase in short interest is neither bullish nor bearish news for a security. Instead, the results conform to the idea of market efficiency. The positive cumulative excess return in the preannouncement period indicates that investors tend to sell short in periods of rising stock prices. However, investors do not benefit from selling short since the average decline in stock price in the post-announcement period is insignificant.

Comments

Copyright 1987 CFA Institute/Wiley

Publication Title

Financial Analysts Journal

Published Citation

Caster, Paul and Joseph D. Vu. "Why All the Interest in Short Interest?" Financial Analysts Journal (July/August 1987) 43(4), pp. 76-79.