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Expanding our Short Squeeze Model to global markets
13 April 2020
Research Signals - April 2020
In May 2015 we introduced the Research Signals Short Squeeze
Model to systematically score US stocks based on their
potential for a short squeeze event. We now expand coverage of the
model globally to Developed Europe and Developed Pacific markets
and expand our US universe size. Using IHS Markit Securities
Finance unique short loan transaction data, our model incorporates
capital constraint indicators, which identify names where short
sellers have increased potential to cover positions, and events,
identifying catalysts for short squeezes. The model can be used to
control risk of short squeezes and enhance alpha forecasts based on
short interest measures, which we demonstrate by measuring the
improvement of our short sentiment factors in a Short Squeeze Model
overlay strategy.
Short squeeze candidates identified by the model within our
highly shorted Developed Europe universe had a 59% greater
likelihood of squeezing compared with the base universe
In Developed Pacific, squeezes occurred 1.23% of the time among
stocks that the model predicted to squeeze, compared with 0.77% for
the universe
The Short Squeeze Model had the highest hit rate in the US
(2.70%) in isolating stocks most likely to squeeze, handily
exceeding the universe rate of 1.29%
US stocks with the highest probability to squeeze outperformed
the universe for open-to-close returns, with an additional 4 bps of
return on average and 13 bps versus names least likely to squeeze,
persisting out to 1-month (6-month) holding periods with 22 bps
(1.52%) and 71 bps (4.72%) of additional alpha, respectively, with
similarly robust results to our expanded global coverage
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
