What is a short squeeze?

Accounting Dec 18, 2020

Expert Solution

A short squeeze occurs when a stock that was heavily shorted goes up rather than down and causes short sellers to liquidate to avoid more losses. If investors short Company A's stock when it is worth $20 and the company's shares rise to $40, short sellers will need to pay back $40 for every $20 they borrowed. The short squeeze may cause the stocks to rise as short sellers add to the momentum of the stock.

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