> Maybe I think Company G is worth $20 but not $40, but if you are selling it short at $5, and I'm prepared to be illiquid for a while, don't I send the correct market signal by squeezing you out of your short?

In this example, you'd be sending the "correct market signal" if you sold your shares as soon as it appreciated to $20. Anything more, and you're moving the market away from its efficient price.

The problem with the squeeze is that certain participants are put into a position where they're being forced to buy. And, that creates an incentive for other shareholders to hold onto their shares well past their fair value. Holding onto shares well past their fair value is antithetical to efficient price discovery.

> In this example, you'd be sending the "correct market signal" if you sold your shares as soon as it appreciated to $20. Anything more, and you're moving the market away from its efficient price.

Is that true? Isn't anything above that price a 'reward' for being correct? And isn't that part of the signal according to a perfect information paradigm?

Well, it's definitely a reward. But as I mentioned in my last reply, it's rewarding the wrong behavior if our goal is efficient price discovery.

I don't see how; it creates a disincentive to take short positions which are too low (good for price discovery) and provides a reward for discovering and outing them (good for price discovery).

S and P is up 15% on its precovid levels while 20% of the poorest quintile in America are unemployed.

That’s the only thing unethical here.

Assuming the index is priced correctly, the fact that SPY is up 20% means the net present value of future cash flows for the largest companies on the exchange have increased through covid. In and of itself, there’s nothing unethical about that. Unless you’re claiming they’re maliciously profiting off the backs of the unemployed? Would be interested in any evidence of that.