Short Interest Theory

Short Interest Theory

An investment theory that states that the price of a security will eventually have to rise after a period of heavy short selling. The short interest theory has the price increase occurring because investors who sell the security short will have to repurchase shares in order to cover their short trades.

Bullish investors may see a high volume of short interest as an opportunity. They may look at the short interest ratio, which is the number of shares sold short divided by the total share volume. A high ratio may show that the time is ripe to pick up shares of the stock, since the short interest theory says that shares should increase in price.


Investment dictionary. . 2012.

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