The effect of short interest on the subsequent stock performance in NASDAQ-100 companies

This quantitative paper investigates the relationship between the short interest ratio and abnormal return of an underlying security on a monthly basis. Short interest data for a 36-month period from January 2012 through December 2014 from NASDAQ-100 companies were used to examine the expected negative relationship. The results however do not support the expectations by stating a significant positive relationship following the ‘contrarian view’. An increase of the short interest ratio of 1% leads to a 60 basis points gain in abnormal returns. The relationship becomes even stronger by another 16 basis points after introducing the control variable firm size measured by the market capitalization.