Short Interest Explained:
Using Short Data to Pick Stocks.

What Is Short Interest and How Is It Measured?

Short interest represents the total number of shares of a stock that have been sold short but not yet covered (bought back). It is expressed in two primary ways:

• Short interest ratio (SI%): Shares sold short divided by total shares outstanding or float. A stock with 10 million shares short out of 100 million float has 10% SI.
• Days to cover (DTC): Shares short divided by average daily trading volume. A DTC of 5 means it would take 5 days of normal volume for all shorts to cover — higher DTC implies more crowded short positions.

FINRA publishes official short interest data twice monthly. The reporting lag (approximately 10 days) means the data is not real-time, but the informational content remains significant because short positions are typically held for weeks to months.

What the Academic Research Says

Boehmer, Jones, and Zhang^[1] analyzed institutional short selling and found that short sellers are, on average, informed traders. Heavy institutional shorting activity predicts negative returns over the subsequent month with high statistical significance. Short sellers are not noise — they are signal.

The critical insight comes from Boehmer, Huszar, and Jordan^[2]: the return-predictive power of short interest is asymmetric. While heavily shorted stocks produce negative abnormal returns (as expected), stocks with low short interest produce statistically and economically significant positive abnormal returns. The "good news in short interest" is that the absence of informed bearish conviction is itself a bullish signal.

Drechsler and Drechsler^[3] further demonstrated that traditional asset pricing anomalies (value, momentum, profitability) are strongest among stocks that are expensive to short — tying the short interest signal directly to the broader factor investing literature.

Short Squeezes: The Crowded Short Trade

The GameStop saga of January 2021 popularized the concept of the short squeeze — a violent upward price move caused by short sellers being forced to cover. While spectacular, short squeeze investing is fundamentally speculative:

• Squeeze catalysts are unpredictable. Timing entry into a crowded short is a high-risk, low-probability trade.
• Post-squeeze returns are almost universally negative. GameStop fell 90% from its squeeze peak within months.
• The academic alpha is in avoiding heavily shorted names and favoring lightly shorted ones — the opposite of squeeze-chasing.

The BCR model intentionally does not screen for squeeze candidates. Sustainable outperformance comes from systematically combining low short interest with strong fundamental and technical factors — the patient, repeatable approach that compounds over years.

How BCR's Short Interest Factor Works

The BCR Short Interest factor normalizes short interest data across the entire universe into a 0-100 percentile score. A high score means the stock has low short interest relative to peers — this is the bullish signal. The score incorporates:

• Short interest as a percentage of float, normalized within sector and market cap peer groups.
• Days to cover ratio, capturing the crowdedness of the short position relative to liquidity.
• Trend in short interest (increasing vs decreasing), capturing whether bearish conviction is building or dissipating.

Top Stocks with Favorable Short Interest Signals

The following equities score highest on BCR's Short Interest factor — meaning they have the lowest short interest relative to peers. When combined with strong composite scores, these represent names where both fundamental quality and market sentiment align bullishly.