Skip to main content
Article
Short Interest Ratio and Equity Market Return: Causality and Impulse Response Functions
Advances in Financial Planning and Forecasting, Forthcoming (2014)
  • Vichet Sum
Abstract

This study examines the causal link between short interest ratio and equity market return and their respective impulse response functions. Based on the analysis of monthly data from 1931M6 to 2012M12, the results reveal that there is a causal link between NYSE short interest ratio and the returns on the NYSE value-weighted and NYSE smallest-cap portfolios. At the aggregated level, the returns on the NYSE value-weighted and NYSE smallest-cap portfolios significantly jump in response to shock to NYSE short interest ratio suggesting that investors who are engaged in short-selling trade, on average, are not really informed. In addition, the NYSE short interest ratio drops significantly following shocks to the returns on the NYSE value-weight, NYSE equal-weighted, NYSE largest-cap and NYSE smallest-cap portfolios suggesting investors follow the momentum in the stock market and reduce their short-selling trade activity significantly.

Keywords
  • short interest ratio,
  • trading activity,
  • stock market return
Publication Date
January 15, 2014
Citation Information
Vichet Sum. "Short Interest Ratio and Equity Market Return: Causality and Impulse Response Functions" Advances in Financial Planning and Forecasting, Forthcoming (2014)
Available at: http://works.bepress.com/vichetsum/64/