Short interest - do short sellers get it right? (US stocks 2018-2026)
The short answer
- Yes, mostly. The more of a company's shares are sold short, the more often the stock is lower a year later, halves, or fails - at every step up.
- Right, but not profitable on average. The median heavily shorted stock falls, yet the average return stays positive: a few squeezes and big winners make up for many losers.
- Strongest in small companies. In companies over $2B, shorts are barely better than a coin flip.
- Build-ups come before falls, typically within about 6 months. Most bankruptcies, though, were not heavily shorted.
1. One year after the short-interest report, by % of shares sold short
All sizes. "Lagged IWM" = did worse than the small-cap index fund over the same year (the typical single stock lags the index even with no shorts, so compare rows, not with 50%).
| Shorted | Reports | Down after 1y | Lagged IWM | Median 1y | Average 1y | Halved within 1y | Failed within 2y |
|---|---|---|---|---|---|---|---|
| under 2% | 238,852 | 48% | 56% | +1% | +7% | 16% | 1.3% |
| 2-5% | 194,380 | 50% | 57% | +0% | +8% | 20% | 1.6% |
| 5-10% | 107,662 | 54% | 61% | -5% | +7% | 29% | 2.8% |
| 10-15% | 38,892 | 55% | 61% | -7% | +12% | 35% | 3.4% |
| 15-20% | 16,056 | 58% | 63% | -13% | +11% | 42% | 6.0% |
| 20-30% | 9,371 | 63% | 67% | -21% | +13% | 48% | 9.4% |
| 30%+ | 3,544 | 66% | 68% | -32% | +11% | 57% | 15.9% |
Company size under $300m (market value at the report)
| Shorted | Reports | Down after 1y | Lagged IWM | Median 1y | Average 1y | Halved within 1y | Failed within 2y |
|---|---|---|---|---|---|---|---|
| under 2% | 64,333 | 55% | 63% | -7% | +7% | 31% | 3.8% |
| 2-5% | 32,984 | 63% | 68% | -21% | +5% | 45% | 7.1% |
| 5-10% | 20,494 | 65% | 70% | -30% | +5% | 53% | 10.5% |
| 10-15% | 7,265 | 65% | 69% | -30% | +18% | 57% | 12.2% |
| 15-20% | 3,138 | 70% | 73% | -42% | +7% | 63% | 17.9% |
| 20-30% | 2,252 | 71% | 75% | -43% | +18% | 62% | 21.7% |
| 30%+ | 1,229 | 79% | 81% | -62% | -5% | 73% | 33.9% |
Company size $300m to $2b (market value at the report)
| Shorted | Reports | Down after 1y | Lagged IWM | Median 1y | Average 1y | Halved within 1y | Failed within 2y |
|---|---|---|---|---|---|---|---|
| under 2% | 73,641 | 51% | 58% | -1% | +6% | 15% | 0.7% |
| 2-5% | 63,036 | 51% | 58% | -1% | +9% | 21% | 1.1% |
| 5-10% | 41,592 | 54% | 61% | -5% | +8% | 30% | 1.9% |
| 10-15% | 18,293 | 54% | 60% | -6% | +13% | 34% | 1.8% |
| 15-20% | 8,463 | 55% | 61% | -9% | +13% | 40% | 3.8% |
| 20-30% | 5,586 | 61% | 65% | -17% | +10% | 46% | 6.7% |
| 30%+ | 1,980 | 60% | 62% | -20% | +22% | 51% | 8.9% |
Company size over $2b (market value at the report)
| Shorted | Reports | Down after 1y | Lagged IWM | Median 1y | Average 1y | Halved within 1y | Failed within 2y |
|---|---|---|---|---|---|---|---|
| under 2% | 100,878 | 41% | 49% | +6% | +9% | 6.3% | 0.2% |
| 2-5% | 98,360 | 44% | 53% | +4% | +9% | 9.9% | 0.1% |
| 5-10% | 45,576 | 49% | 57% | +0% | +8% | 17% | 0.3% |
| 10-15% | 13,334 | 52% | 59% | -2% | +7% | 25% | 1.1% |
| 15-20% | 4,455 | 55% | 61% | -5% | +9% | 29% | 1.9% |
| 20-30% | 1,533 | 56% | 64% | -10% | +17% | 35% | 2.1% |
| 30%+ | 335 | 57% | 59% | -9% | +11% | 30% | 2.0% |
2. By days to cover (the 'short interest ratio')
Days to cover = shares sold short / average daily volume. It is a weaker signal than % of shares, and the worst group is the lowest: stocks trading so heavily that shorts could cover in under a day are mostly hyped stocks.
| Days to cover | Reports | Down after 1y | Lagged IWM | Median 1y | Average 1y | Halved within 1y | Failed within 2y |
|---|---|---|---|---|---|---|---|
| under 1 day | 55,483 | 61% | 69% | -14% | -3% | 38% | 6.3% |
| 1-2 | 78,532 | 47% | 56% | +2% | +11% | 18% | 1.9% |
| 2-5 | 247,560 | 47% | 55% | +2% | +11% | 16% | 1.3% |
| 5-10 | 149,867 | 52% | 58% | -2% | +7% | 23% | 1.9% |
| 10-20 | 62,545 | 55% | 60% | -5% | +7% | 29% | 2.3% |
| 20+ | 14,665 | 57% | 62% | -8% | +6% | 33% | 3.0% |
3. After a short build-up: how soon does the stock halve?
Counted from the day the report is public (about 2 weeks after the settlement date), at most one build-up per company per year. Days = median calendar days until the close is half the starting price, for those that halved within 2 years.
| Build-up | Cases | Halved within 3m | 6m | 12m | 24m | Days to halve | Failed within 2y |
|---|---|---|---|---|---|---|---|
| Doubled to 10%+ within 3 months - all sizes | 1,117 | 13% | 29% | 47% | 62% | 195 | 9.1% |
| Doubled to 10%+ within 3 months - Under $300M | 478 | 23% | 45% | 64% | 79% | 163 | 15.9% |
| 10%+ after under 5% for 6 months - all sizes | 115 | 17% | 34% | 50% | 63% | 153 | 3.5% |
| 10%+ after under 5% for 6 months - Under $300M | 61 | 26% | 51% | 70% | 87% | 146 | 3.3% |
| 20%+ after under 10% for 6 months - all sizes | 42 | 26% | 48% | 62% | 76% | 144 | 7.1% |
| 20%+ after under 10% for 6 months - Under $300M | 33 | 27% | 55% | 73% | 88% | 146 | 6.1% |
| Comparison: under 5% shorted - all sizes | 383,304 | 4.0% | 9.3% | 18% | 29% | 287 | 1.4% |
| Comparison: under 5% shorted - Under $300M | 85,741 | 9.7% | 21% | 36% | 50% | 223 | 4.9% |
4. Companies that failed: how heavily were they shorted before the end?
711 companies that stopped trading after mid-2019 in bankruptcy, below $1, or after losing 80%+ in their last year. Typical stock for comparison: median 2.3% shorted.
| Before the last trading day | Median shorted | 10%+ shorted | 20%+ shorted | Companies |
|---|---|---|---|---|
| 24 months before | 2.6% | 16% | 5.5% | 488 |
| 12 months before | 2.2% | 16% | 5.3% | 624 |
| 6 months before | 2.1% | 16% | 6.6% | 651 |
| 3 months before | 2.5% | 17% | 6.0% | 655 |
| 1 month before | 2.3% | 17% | 8.7% | 646 |
Only 46% of failed companies were ever 10%+ shorted in their last 2 years - versus about 40% of small companies that are still trading. Likely reasons: tiny companies are hard or costly to borrow, shorts take profits before the end, and heavy share issuance makes the short % look small. When shorts were early, they were very early: the first 20%+ reading came a median 12 months before the end (middle half 5-20 months), the first 10%+ reading 17 months before.
Example - Bed Bath & Beyond: 20-60% of its shares were sold short from 2019 on, yet it rallied about 3x in the January 2021 squeeze and again in August 2022 before going bankrupt in 2023. Shorts were right - but early, and painfully so.
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