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 |
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| Institution: | 1. Ono Academic College, Faculty of Business Administration, Tzahal St 104, Kiryat Ono, Israel;2. University of Southampton, Southampton Business School, Department of Banking and Finance, Room 1013, Building 4, Highfield Campus, Southampton SO17 1BJ, United Kingdom;3. Zayed University, College of Business, P.O. Box 144534, Abu Dhabi, United Arab Emirates;4. South Ural State University, Chelyabinsk, Russian Federation;5. Montpellier Business School, 2300 Avenue des Moulins, 34185 CEDEX 4 Montpellier, France;6. Montpellier Research in Management, University of Montpellier, Montpellier, France;7. Poznan University of Economics and Business, Institute of Finance, Department of Investment and Financial Markets, al. Niepodleg?o?ci 10, 61-875 Poznań, Poland |
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| 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. |
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| Keywords: | Static and dynamic connectedness GameStop Short-interest index Stock returns Return volatility Spillovers WallStreetBets |
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