Abstract

http://ssrn.com/abstract=1787677
 
 

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Shorting at Close Range: A Tale of Two Types


Carole Comerton-Forde


University of Melbourne - Department of Finance; Financial Research Network (FIRN)

Charles M. Jones


Columbia Business School - Finance and Economics

Tālis J. Putniņš


University of Technology, Sydney - UTS Business School; Stockholm School of Economics in Riga; Financial Research Network (FIRN)

March 11, 2012

AFA 2012 Chicago Meetings Paper
Columbia Business School Research Paper No. 12/22

Abstract:     
We examine stock returns, order flow, and market conditions in the minutes before, during, and after recent short sales on the NYSE and Nasdaq. We find two very distinct types of short sales: those that provide liquidity, and those that demand it. Shorts that supply liquidity do so when spreads are unusually wide. These short sellers are also strongly contrarian, stepping in to initiate or increase a short position after fairly sharp share price rises over the past hour or so, and they tend to face greater adverse selection than other liquidity suppliers. In contrast, shorts that demand liquidity tend to be short-term momentum traders. However, there is no evidence that liquidity-demanding short sellers are any different from other liquidity demanders. Overall, liquidity-providing short sales are important contributors to stock market quality, and regulators and policymakers should keep these salutary effects in mind.

Number of Pages in PDF File: 40

Keywords: short selling, information content, market quality, high-frequency trading

JEL Classification: G14, G19

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Date posted: March 21, 2011 ; Last revised: April 19, 2012

Suggested Citation

Comerton-Forde, Carole and Jones, Charles M. and Putniņš, Tālis J., Shorting at Close Range: A Tale of Two Types (March 11, 2012). AFA 2012 Chicago Meetings Paper; Columbia Business School Research Paper No. 12/22. Available at SSRN: http://ssrn.com/abstract=1787677 or http://dx.doi.org/10.2139/ssrn.1787677

Contact Information

Carole Comerton-Forde
University of Melbourne - Department of Finance ( email )
198 Berkeley Street
Carlton VIC 3010
Australia
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Charles M. Jones (Contact Author)
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)
HOME PAGE: http://www.columbia.edu/~cj88/

Talis J. Putnins
University of Technology, Sydney - UTS Business School ( email )
PO Box 123
Broadway
Sydney
Australia
+61 2 95144022 (Phone)
Stockholm School of Economics in Riga ( email )
Strelnieku Iela 4a
Riga, LV1010
Latvia
+371 67015841 (Phone)
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

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