Shares in Avis Budget Group have surrendered all gains from a 600% short squeeze earlier this year, bringing an end to a volatile episode that inflicted heavy losses on bearish investors and sparked a legal dispute with hedge fund Pentwater Capital Management, according to a report by Bloomberg.

The rental car company's shares fell as much as 3.5% to $99.20 on Monday, returning to levels seen before a sharp rally in March that briefly pushed the stock above $700.

The squeeze began after Pentwater disclosed an increase in its substantial Avis stake, triggering a buying frenzy as short sellers scrambled to cover positions. At the time, more than half of Avis's available shares were sold short, amplifying the rally.

The reversal came after Pentwater disclosed the sale of 4.3 million shares, prompting the stock to surrender 70% of its gains in just two trading sessions. Avis subsequently accused the hedge fund of contributing to the volatility, with Pentwater agreeing to pay $650m to settle litigation over short-swing profits.

The stock's continued decline reflects deteriorating fundamentals across the rental car industry, with inflation, elevated interest rates, weak international travel demand and disappointing earnings weighing on valuations.

Short interest in Avis has since fallen to 29% of its public float, substantially below its March peak, according to S3 Partners. Rival Hertz remains heavily targeted by bearish investors, with 81% of its float sold short.

Vikram Rai of First New York, who traded Avis during the squeeze, described the episode as one of his most profitable trades of the year, although he no longer holds a position.

The reversal highlights the risks of crowded short positions and the speed at which speculative rallies can unwind once buying pressure subsides.