A Long and a Short Leg Make For a Wobbly Equilibrium / Nicolae B. Gârleanu, Stavros Panageas, Geoffery X. Zheng.

Format:

Book

Author/Creator:

Gârleanu, Nicolae B.

Contributor:

National Bureau of Economic Research.

Panageas, Stavros.

Zheng, Geoffery X.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28824.

NBER working paper series no. w28824

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

We document the historically bad performance of shorting strategies in late 2020 and early 2021. Short sellers started retreating several weeks before the dramatic growth in the online discussion of January 2021 and across numerous stocks, the majority of which were not heavily discussed online and did not experience an unusual increase in retail buying volume. We provide a model to explain how fears among short sellers can become self-fulfilling and lead to "run-type" behavior. The model also provides a novel explanation why rational short sellers may choose to leave the market even as mispricing widens.

Notes:

Print version record

May 2021.