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An Investigation of the Informational Role of Short Interest in the Nasdaq Market

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  • Hemang Desai
  • K. Ramesh
  • S. Ramu Thiagarajan
  • Bala V. Balachandran

Abstract

This paper examines the relationship between the level of short interest and stock returns in the Nasdaq market from June 1988 through December 1994. We find that heavily shorted firms experience significant negative abnormal returns ranging from −0.76 to −1.13 percent per month after controlling for the market, size, book‐to‐market, and momentum factors. These negative returns increase with the level of short interest, indicating that a higher level of short interest is a stronger bearish signal. We find that heavily shorted firms are more likely to be delisted compared to their size, book‐to‐market, and momentum matched control firms.

Suggested Citation

  • Hemang Desai & K. Ramesh & S. Ramu Thiagarajan & Bala V. Balachandran, 2002. "An Investigation of the Informational Role of Short Interest in the Nasdaq Market," Journal of Finance, American Finance Association, vol. 57(5), pages 2263-2287, October.
    • Handle: RePEc:bla:jfinan:v:57:y:2002:i:5:p:2263-2287
    DOI: 10.1111/0022-1082.00495
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    References listed on IDEAS

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