Paying Attention to Short Interest

This thesis examines the relation between short interest and investor attention, and the implications for stock returns. In Australia, where short interest data is highly transparent, stocks with high short interest attract more attention from retail investors. However, when they see a stock is heavily shorted, they are less likely to buy it. This weakens the usual tendency for stocks experiencing high attention to rise in price. In the United States, where short interest data is significantly less transparent, these effects are much weaker. The results suggest transparent short interest data can influence retail investors’ decision making and trading behaviour.