How prevalent are short squeezes? Evidence from the US and Europe

Franklin Allen, Marlene Haas, Matteo Pirovano and Angel Tengulov

Journal of Banking & Finance, 2025, vol. 176, issue C

Abstract: We develop a novel measure to identify short squeezes triggered by sharp price increases. These “market squeezes” drive short sellers to close their positions early. To provide a comprehensive analysis of short squeeze dynamics, we also examine lender squeezes, identified through share recalls. We find that stock-day short-squeeze events are rare and short-lived. However, the quarterly proportion of unique stocks experiencing market squeezes is 9.9% (12.3%) in the US (EU), compared to 8.7% (5.4%), for lender squeezes. Our analysis shows that market and lender squeezes are driven by different determinants. We find that market squeezes impair price discovery, consistent with significant declines in short interest after these events. This contrasts with lender squeezes, after which short interest remains stable or increases, and price discovery remains unaffected.

Keywords: Short squeeze; Stock cornering; Market misconduct; Disclosure and securities regulation (search for similar items in EconPapers)
JEL-codes: G12 G13 G14 G18 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:176:y:2025:i:c:s0378426625000561

DOI: 10.1016/j.jbankfin.2025.107436

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