High short interest stocks performance during the Covid-19 crisis: an informational efficacy measure based on permutation-entropy approach

Fotios Siokis

Journal of Economic Studies, 2023, vol. 50, issue 7, 1570-1584

Abstract: Purpose - The author examine the performance of a number of high short interest stocks along with the prices of the GameStop stock and three major stock exchange indices, particularly for the period after the eruption of the Covid-19 crisis. Design/methodology/approach - With the employment of the complexity–entropy causality plane approach, the author categorize the stock prices in terms of the level of informational efficiency. Findings - The author reported that the efficiency level for the index of the high short interest stocks falls considerably, not only at the onset of the Covid-19 crisis but during the health crisis period at hand. This is translated into proof of less uncertainty in predicting the stock prices of these specific stocks. On the other hand, the GameStop prices exhibit the same behavior as those with the high short interest firms, but change considerably in the middle of the crisis. The reversal of the behavior, by obtaining higher informational efficiency levels, is attributed to the short squeeze frenzy that increased the price of the stock many times over. Among the stock market indices, the Dow Jones Industrial Average and the S&P 500 decreased their efficiency levels marginally, after the surge of the crisis, while the Russell 2000 index kept the level intact. The high and stable degree of randomness could be attributed to the measures taken concurrently by the Federal Reserve and the government immediately after the outbreak of the crisis. Originality/value - This is one of the few studies that examine the impact of short selling behavior on the efficiency level of certain stocks' prices, particularly during the health public crisis. It provides an alternative approach to measuring quantitatively the degree of inefficiency and randomness.

Keywords: Efficient market hypothesis; Stock exchange markets; Public health crisis; Short selling; Permutation entropy; Information efficiency (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-11-2022-0569

DOI: 10.1108/JES-11-2022-0569

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