An Investigation of the Informational Role of Short Interest in the Nasdaq Market, Journal of Finance
This paper examines the relationship between the level of short interest and stock returns in the Nasdaq market from June 1988 through December 1994. The paper finds that heavily shorted firms experience significant negative abnormal returns ranging from -0.76 to -1.13 percent per month after controlling for the market, size, book-to-market, and momentum factors. These negative returns increase with the level of short interest indicating that a higher level of short interest is a stronger bearish signal. The paper finds that heavily shorted firms are more likely to be delisted compared to their size, book-to-market, and momentum matched control firms.
Bala Balachandran, Hemang Desai, K. Ramesh, S.Ramu Thiagarajan
Balachandran, Bala, Hemang Desai, K. Ramesh, and S.Ramu Thiagarajan. 2002. An Investigation of the Informational Role of Short Interest in the Nasdaq Market. Journal of Finance. 57(5): 2263-2287.