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Technology Stocks : AUTOHOME, Inc
ATHM 23.48+1.2%Nov 21 9:30 AM EST
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To: KW Wingman who wrote (8933)5/2/1999 10:58:00 PM
From: ahhaha  Read Replies (1) of 29970
 
My comments were addressing non-arbitrage hedging referred to as structural or trading hedging. When the XCIT deal closes, of course short interest will drop substantially, because the arbitrageurs will cover their shorts. That action has no necessary consequences on ATHM price. If ATHM is dropping in the several days before close for other reasons, the short covering will only slow down the rate of fall. If ATHM is rising then the shorts are forced to cover more aggressively and that can certainly cause instantaneous rapid price movement. What ever excesses that go in will come out because price is in equilibrium at expectations of future profitability growth.

Since the mid 80s the inverse from long ago relation between level of short interest and price has become more pronounced. You will find for example, in DOW or SP500 stock that short interest is well-correlated with price. The point is that even if the information were made available daily, it wouldn't help to discern where price might go. A little thinking will show how anticipation by floor traders would take the meat out of such expectation, but soon there would be no expectation, so there wouldn't be any meat. If you're making a determination about what ATHM might do because of arbitrage effects, you might be right, but it is equally probable you might be wrong. Arbitrageurs have a net effect of fixing price since they are effectively hedged. That means they'll sell stock held long into their own booked orders to buy or deliver shares on option exercise. Mostly this has the effect of fixing price, but in the dynamic market circumstances existing here this seems improbable.
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