N°23-63: How Prevalent Are Short Squeezes? Evidence From the US and Europe

A short squeeze is triggered if there is pressure on short sellers to cover their positions because of a sharp price increase or a recall of borrowed shares. This drives short sellers to close their positions early. We find that stock-day short-squeeze events are rare and short-lived. However, the proportion of unique stocks experiencing a short squeeze in a given year is 25% in both the US and the EU. While we find an uptick in the number of firms experiencing a squeeze in recent years in the US, squeezes are relatively constant across time in the EU. We also review the academic literature on the topic and provide directions for future research.