Stock performance based on short interest
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April 18th, 2009 by Prieur du Plessis, Investment Postcards from Cape Town
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Bespoke brought an interesting research study on short positions to our attention earlier this week, as reported below.
“Since the S&P 500 bottomed on March 9, the average stock in the index has rallied by 41.2%. However, as Bank of America (BAC), Citigroup (C), and other names have shown, many companies have done considerably better, with gains of over 100%.
“One factor which has been a key driver of stock performance off the lows has been a stock’s short interest as a percentage of float. In the chart below, we have grouped the stocks of the S&P 500 into deciles based on their short interest as of the end of February (which was the most recent available data as of the March lows). We then calculated the average return of the stocks in each group from March 9 through April 13.
“As shown in the chart, the five deciles with the highest short interest as a percentage of float at the end of February have all outperformed the average overall return, while the five deciles with the lowest short interest have all underperformed.
“Skeptics of the market’s rally would point to these results and say that the current rally is nothing more than a short-covering one. However, going back to the 2002 lows, every rally (whether real or a head fake) started off in a similar fashion.”
Makes you think!
Source: Bespoke, April 14, 2009.
Dr. Prieur du Plessis is an investment professional with 26 years' experience in investment research and portfolio management. More than 1,200 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns, including his blog, Investment Postcards from Cape Town. He has also published a book, Financial Basics: Investment. Prieur is Chairman and principal shareholder of South African-based Plexus Asset Management, which he founded in 1995. The group conducts investment management, investment consulting, private equity and real estate activities in South Africa and a number of foreign countries. He also serves as Honorary Consul of Slovenia for South Africa, actively developing economic, cultural and scientific relations between Slovenia and South Africa. Prieur is 54 years old and live with his wife, television producer and presenter Isabel Verwey, and two children in Cape Town, South Africa. His leisure activities include long-distance running, traveling, reading, motor-cycling and scripophily. Read more from the author/contributor here.
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