One of the non-price tools traders and analysts sometimes use to gain insight into the strength or weakness of the market or a particular stock is short interest, which is the number of open short positions — shares that have been sold short, but have not yet been repurchased (“covered”). The perennial question: If traders sell short a large percentage of a stock’s total outstanding shares, is that a bullish or bearish sign? Like most indicators, there are different opinions regarding the relationship between short interest and stock prices, but few clear answers.

New research on the relationship between stock prices and short interest challenges conventional wisdom. It confirms high short-interest individual stocks tend to drop in price while low short-interest stocks tend to rise. However, one of these studies also acknowledges the power of short squeezes in recent years, meaning the contrarian view of short interest isn’t entirely unfounded.