Short Interest: Its Influence as a Stabilizer of Stock Returns

Abstract

Short interest is the number of shares of a stock borrowed for sale (and not yet replaced) by investors who anticipate a decline in the stock's price. After its price falls, the stock is purchased to replace the borrowed shares, the selling price being higher than the purchase price whence the profit. The New York and American Stock Exchanges disclose the current outstanding short interest for the market as a whole and for selected stocks around the 15th of each month.