Short-squeeze bubbles

Bernardo Guimaraes and Pierluca Pannella ()
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Pierluca Pannella: Sao Paulo School of Economics - FGV

No 2109, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: This paper argues that short selling might give rise to rational bubbles that would otherwise not exist in equilibrium. It is crucial for the argument that short selling is not the same as issuing an asset: it entails a commitment to buy the stock later on. By raising the stock’s future demand, short selling might allow for a path of ever-increasing prices. Several features of our model resemble the short-squeeze episodes of early 2021.

Keywords: short selling; asset bubbles; Gamestop; overpricing; market frenzies (search for similar items in EconPapers)
JEL-codes: D84 G12 G14 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2021-03
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