Did David Win a Battle or the War Against Goliath? Dynamic Return and Volatility Connectedness between the GameStop Stock and the High Short Interest Indices

Can a short-squeeze incident trigger financial contagion over the entire stock markets? The recent GameStop frenzy provides a unique natural experiment to explore this question. In this study, we examine the static and dynamic return and volatility connectedness among the GameStop stock, the U.S. stock market, and the novel market-wide and sectoral short-interest indices. Contrary to anecdotal evidence, we find that the GameStop stock is not a net transmitter, but rather a net recipient of return and volatility spillovers from other companies shorted in the market. This result agrees with a view that short-interest indices provide price discovery for shorted stocks. Therefore, although David might have won a battle against Goliath, he does not seem to win the war