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Lumifer comments on Stupid Questions, December 2015 - Less Wrong
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You are talking about why penny stocks are volatile and yes, that's all true. However it's also true that the upside/downside asymmetry is especially pronounced for them.
I'm confused. Do you believe that if you took a penny stock and divided its share count by 100, thus multiplying its price by 100, it would be less risky for short sellers simply because of the price? Let's assume for the sake of argument that it's current price is in the $3 range, so the fact that the minimum quote is in pennies isn't a large effect.
Hm, I think you're right. The high(er) risk for shorts is a function of volatility (or, more generally, distribution shape) and not of the price level.
The price level has its consequences but these tend to be beneficial for shorts.