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

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

Research in International Business and Finance, 2023, vol. 64, issue C

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.

Keywords: Static and dynamic connectedness; GameStop; Short-interest index; Stock returns; Return volatility; Spillovers; WallStreetBets (search for similar items in EconPapers)
JEL-codes: G10 G11 G14 G41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: 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 (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:64:y:2023:i:c:s0275531922001891

DOI: 10.1016/j.ribaf.2022.101803

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