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Did David win a battle or the war against Goliath? Dynamic return and volatility connectedness between the GameStop stock and the high short interest indices

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  • Aharon, David Y.
  • Kizys, Renatas
  • Umar, Zaghum
  • Zaremba, Adam

Abstract

Can a short-squeeze incident trigger financial contagion over heavily shorted companies? The recent GameStop frenzy provides a unique natural experiment to explore this question. This study examines the static and dynamic return and volatility connectedness among the GameStop stock, the novel market-wide and sectoral short-interest indices, and the U.S. stock market. Contrary to anecdotal evidence, we find that the GameStop stock is not a net transmitter but a net recipient of return and volatility spillovers from other companies shorted in the market. This result agrees with the view that short-interest indices provide price discovery for shorted stocks. Therefore, although David might have won a battle against Goliath, he does not seem to win the war.

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  • Aharon, David Y. & Kizys, Renatas & Umar, Zaghum & Zaremba, Adam, 2023. "Did David win a battle or the war against Goliath? Dynamic return and volatility connectedness between the GameStop stock and the high short interest indices," Research in International Business and Finance, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:riibaf:v:64:y:2023:i:c:s0275531922001891
    DOI: 10.1016/j.ribaf.2022.101803
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    Cited by:

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    5. Hu, Yang & Lang, Chunlin & Corbet, Shaen & Wang, Junchuan, 2024. "The impact of COVID-19 on the volatility connectedness of the Chinese tourism sector," Research in International Business and Finance, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Static and dynamic connectedness; GameStop; Short-interest index; Stock returns; Return volatility; Spillovers; WallStreetBets;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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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