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Academic audit

Failedequity XS short-interest

Short Interest Effect Long Short Version

The three-gate gauntlet · genuine only if it clears all three and survives adversarial refutation
Gate 1
Survivorship-free
free
clean panel
Gate 2
Placebo ≥ P95
not run
Eliminated here
Gate 3
Cost-aware net
RF -0.56
net-negative after costs
Failed
Worst 12-month leg (RF)-0.83
−1.00 floor0
Every strategy here — winners included — loses in its worst 12 months. Depth is honest context, not the verdict.
Rejected at the cost gate — the net edge turns negative once modelled costs are applied.

A cross-sectional equity strategy that goes long stocks with low short interest and short stocks with high short interest, on the documented finding that heavily-shorted names tend to underperform. The original paper studied a pre-2010 US sample.

What we found

Reconstructed on public FINRA Consolidated Short Interest data, the long/short combination fails in the modern window (RF -0.56, worst-year RF -0.83). The failure is instructive rather than random: the long low-short-interest leg actually works, but the short high-short-interest leg is a large drag, because 2019-2026 is the meme-stock short-squeeze era (GME, AMC) when shorting the most-crowded names got run over. The documented pre-2010 effect does not survive this regime in long/short form, and we also had to proxy the signal with days-to-cover rather than the paper's short-interest-to-shares-outstanding ratio.

How we tested it
2019–2026 test windowmodelled liquidity-aware costssurvivorship free
  • FINRA consolidated short interest, 2019-2026 (public Consolidated Short Interest API, 1274 NMS symbols across 180 bi-monthly settlements, with a 10-day dissemination lag). Realistic modelled costs.
  • Placebo / robustness test: real result vs random baskets or shuffled signals (real vs the 95th percentile of random)
Source: Boehmer, Huszar & Jordan (2010), "The good news in short interest", J. Financial Economics
Read the paper ↗
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Research, not investment advice. “Validated” factor-legs are market-neutral diversifying building blocks with a losing worst year — none is a standalone tradeable strategy. Metrics are cost-aware and modelled (not live fills); the 2005–2026 test window is out-of-sample versus the source paper. Dollar figures are not returns and are omitted by design.