Shorting at close range: A tale of two types
- Publication Type:
- Journal Article
- Journal of Financial Economics, 2016, 121 (3), pp. 546 - 568
- Issue Date:
Files in This Item:
Copyright Clearance Process
- Recently Added
- In Progress
- Open Access
This item is currently unavailable due to the publisher's embargo.
The embargo period expires on 1 Oct 2020
© 2016 We examine returns, order flow, and market conditions in the minutes before, during, and after NYSE and Nasdaq short sales. We find two distinct types of short sales: those that provide liquidity, and those that demand it. Liquidity-supplying shorts are strongly contrarian at intraday horizons. They trade when spreads are unusually wide, facing greater adverse selection. Liquidity-demanding shorts trade when spreads are narrow and tend to follow short-term price declines. These results support a competitive rational expectations model where both market-makers and informed traders short, indicating that these two shorting types are integral to both price discovery and liquidity provision.
Please use this identifier to cite or link to this item: