Cleaned up the code a bit and updated the chart, it's ugggglllyyy @choffstein @alphaarchitect @CliffordAsnesspic.twitter.com/rV2uvj8Okx
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Moves in heavily shorted stocks are *extreme*. Short interest factor return (in std devs) last Friday was -2.4, Monday -3.9, Tue -5.1 and yesterday **-8.8**. Overall it's a 10 standard deviation move, giving up ~3 years of return in four days
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Standard disclaimers, this is a pure factor return with no trading or financing costs, you cannot actually get this return stream in practice etc etc
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I miscalculated above, it's actually ~1.5 years of return in four days, still pretttttyyy grim.
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Another note — factor above is not hedged to momentum (generally +ve correlated) or size (-ve correlated as heavily shorted stocks tend to be small or mid caps) so part of the drop is just small caps rallying.
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Update — short interest factor was *up* about 2% yesterday (a 6 stdev move) though looking likely to be down again today.
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Not that current moves are at all attached to market, but can you subtract the market from these? I remember a similar death of shorted stocks in 2018 that I’m not seeing here.
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I find it odd we continually cite standard deviations for return distributions that are clearly not normally distributed
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