See my article at the Motley Fool on why buying highly-shorted stocks is a bad idea.
By the way, my editor cut what I thought was one of the most important paragraphs, the second to last:
“However, Finance professors have done similar research on much larger samples of stocks and have ended up with the same result. The article An Investigation of the Informational Role of Short Interest in the Nasdsaq Market, by Desai, Thiagarajan, Ramesh, and Balanchandran, explains how as short interest increases, the future returns of stocks
decrease. A more recent paper, by Boehmer, Erturk, Sorescu of Texas A&M University, Why do short interest levels predict stock returns? finds that the reason highly shorted stocks under-perform the market is because short sellers tend to be well-informed.”
If you like the article, please give it a recommendation.