The Optimal Trade Size Choice of Informed Short Sellers

31 Pages Posted: 15 May 2008 Last revised: 5 Aug 2009

See all articles by Benjamin M. Blau

Benjamin M. Blau

Utah State University - Huntsman School of Business

Bonnie F. Van Ness

University of Mississippi - Department of Finance

Robert A. Van Ness

University of Mississippi - Department of Finance

Date Written: May 8, 2008

Abstract

Research (Diamond and Verrecchia, 1987, and Boehmer, Jones, and Zhang, 2008) finds that short sellers are informed about the true value of stocks as current short selling predicts future returns. We test which short-sale sizes contain the most information. While studies (Diether, Lee, and Werner, 2007) document that short sellers follow periods of positive past returns, we find that short sellers generally use larger sizes after periods of higher returns both at the intradaily and daily levels. Further, we show that larger short sales are better able to predict negative returns than smaller short sales, indicating that informed short sellers do not attempt to disguise their information in smaller trades (stealth trade) and instead prefer using larger trade sizes.

Keywords: Stealth Trading, Short Selling

Suggested Citation

Blau, Benjamin M. and Van Ness, Bonnie F. and Van Ness, Robert A., The Optimal Trade Size Choice of Informed Short Sellers (May 8, 2008). Available at SSRN: https://ssrn.com/abstract=1133148 or http://dx.doi.org/10.2139/ssrn.1133148

Benjamin M. Blau

Utah State University - Huntsman School of Business ( email )

3500 Old Main Hill
Logan, UT 84322
United States

Bonnie F. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States
662-915-6749 (Phone)
662-915-7968 (Fax)

Robert A. Van Ness (Contact Author)

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

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