Detecting the great short squeeze on Volkswagen

Keith R.L. Godfrey

Pacific-Basin Finance Journal, 2016, vol. 40, issue PB, 323-334

Abstract: On 28 October 2008 a short squeeze on Volkswagen stock propelled this car maker to become the world's most valuable company for a day. I study the market behavior empirically and investigate whether the timing of the price spike could have been anticipated from earlier trading. I utilize price information from regional stock exchanges in parallel with the primary electronic trading platform Xetra. Although the trading volume on the seven regional exchanges is small, the geographical variation in traded prices shows anomalies when the law of supply and demand begins to overrule the law of one price, and this is observed more than 24h ahead of the price peak. I find that the coefficient of variation in the prices at the regional exchanges is a leading indicator of the Volkswagen price spike.

Keywords: Short squeeze; Volkswagen; Porsche; Regional variation; Law of one price; Limits to arbitrage (search for similar items in EconPapers)
JEL-codes: D43 D81 G12 G17 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:40:y:2016:i:pb:p:323-334

DOI: 10.1016/j.pacfin.2016.02.001

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