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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

Author

Listed:
  • David Aharon

    (Ono Academic College)

  • Renatas Kizys

    (University of Southampton)

  • Zaghum Umar

    (Zayed University, Chelyabinsk State University)

  • Adam Zaremba

    (Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School, UM - Université de Montpellier, PUEB - Poznań University of Economics and Business)

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.

Suggested Citation

  • David Aharon & Renatas Kizys & Zaghum Umar & Adam Zaremba, 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," Post-Print hal-04583804, HAL.
    • Handle: RePEc:hal:journl:hal-04583804
    DOI: 10.1016/j.ribaf.2022.101803
    Note: View the original document on HAL open archive server: https://hal.science/hal-04583804
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    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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