By the Numbers

Speculation of Short Squeeze Drives AIG Higher

David Faber, Giovanny Moreano, Ariel Nelson

Shares of American InternationalGroup are up over 42 percent in the past five trading sessions, as speculation over possible restrictions and further asset sales on semi-owned government entities have emerged in the past few days.

Other stocks such as Citigroup, Fannie Mae , and Freddie Mac have seen gains of 16, 14 and 10 percent, respectively, since the close on March 3, 2010. (See David Faber's report in the video.)

Run of the Runts

The most obvious reason for the rise in price might be due to a short squeeze, a situation that pressures short sellers to cover their positions as a result of price increases. 

For example, consider AIG.  According to Thomson Reuters data and as of yesterday's close, AIG is the S&P 500 stock currently trading at the highest premium to its analysts' consensus price estimate, 47 percent over the target price as of midday.  When Wall Street expects a stock to go down, its short interest rises.  If new restrictions are passed, the shorts would be forced to buy more AIG shares, thereby driving the price higher.

Indeed, trading volume on these four companies more than doubled over the last two trading sessions.  As depicted on the table below, volume on shares of Fannie Mae, for example, a government-sponsored mortgage enterprise, spiked 846 percent from March 8-9. 

Again the moves seem to be based on speculation. 

Reported by David Faber. Written by Giovanny Moreano, Ariel Nelson

Data source: CNBC Analytics & Thomson Reuters

Send comments