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 18, 2015

Journal of Financial Economics (JFE), Forthcoming
AFA 2012 Chicago Meetings Paper
Columbia Business School Research Paper No. 12/22

Abstract:     
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.

Number of Pages in PDF File: 50

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: June 26, 2015

Suggested Citation

Comerton-Forde, Carole and Jones, Charles M. and Putniņš, Tālis J., Shorting at Close Range: A Tale of Two Types (March 18, 2015). Journal of Financial Economics (JFE), Forthcoming; 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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