Abstract
The present study examines the behavior of futures markets in the wake of widespread short selling and subsequent short covering, which frequently lead to notable price increases. Known as the "Double Peak Model," this study provides a thorough analysis by synthesizing empirical data and recent literature. Data on futures contracts for different financial indices and commodities during periods of notable short interest and subsequent short covering are gathered for the study. Using statistical and econometric methods, the research examines trends in price movements and volatility. Key findings show that while short covering can result in sudden and sharp price increases, short selling can improve market efficiency and transparency by improving information flow. The study also emphasizes how crucial institutional involvement, legal frameworks, and market dynamics are in determining these price fluctuations. The Double Peak Model provides a deeper understanding of the mechanisms underlying market behaviors related to short selling and covering, which is useful information for traders, investors, and policymakers. These understandings are essential for creating sensible regulatory policies, enhancing risk management, and creating successful trading strategies.
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