NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Aggregate Short Interest and Market Valuations

Owen A. Lamont, Jeremy C. Stein

NBER Working Paper No. 10218
Issued in January 2004
NBER Program(s):   AP

We examine some basic data on the evolution of aggregate short interest, both during the dot-com era, and at other times in history. Total short interest moves in a countercyclical fashion. For example, short interest in NASDAQ stocks actually declines as the NASDAQ index approaches its peak. Moreover, this decline does not seem to reflect a substitution away from outright short-selling and towards put options, as the ratio of put-to-call volume displays the same countercyclical tendency. The evidence suggests that: i) arbitrageurs are reluctant to bet against aggregate mispricings; and ii) short-selling does not play a particularly helpful role in stabilizing the overall stock market.

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Document Object Identifier (DOI): 10.3386/w10218

Published: Lamont, Owen A. and Jeremy C. Stein. "Aggregate Short Interest And Market Valuations," American Economic Review, 2004, v94(2,May), 29-32.

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