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
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
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.
Static and dynamic connectedness, GameStop, Short-interest index, Stock returns, Return volatility, Spillovers, WallStreetBets
Aharon, David Y.
3108729a-17ec-4bd6-b8fe-2559e45770d5
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Umar, Zaghum
72ea661c-27d5-4bd8-88bf-2e7bdaa57f8c
Zaremba, Adam
30534111-ed33-47e9-bb18-2163d304eca6
1 January 2023
Aharon, David Y.
3108729a-17ec-4bd6-b8fe-2559e45770d5
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Umar, Zaghum
72ea661c-27d5-4bd8-88bf-2e7bdaa57f8c
Zaremba, Adam
30534111-ed33-47e9-bb18-2163d304eca6
Aharon, David Y., Kizys, Renatas, Umar, Zaghum and Zaremba, Adam
(2023)
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.
Research in International Business and Finance, 64, [101803].
(doi:10.1016/j.ribaf.2022.101803).
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.
Text
1-s2.0-S0275531922001891-main
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More information
Accepted/In Press date: 7 November 2022
e-pub ahead of print date: 18 November 2022
Published date: 1 January 2023
Keywords:
Static and dynamic connectedness, GameStop, Short-interest index, Stock returns, Return volatility, Spillovers, WallStreetBets
Identifiers
Local EPrints ID: 475123
URI: http://eprints.soton.ac.uk/id/eprint/475123
ISSN: 0275-5319
PURE UUID: 12c1d016-d7f0-475d-a420-70beea5d3c9b
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Date deposited: 10 Mar 2023 17:36
Last modified: 17 Mar 2024 03:57
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Contributors
Author:
David Y. Aharon
Author:
Zaghum Umar
Author:
Adam Zaremba
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