Shorting at Close Range: A Tale of Two Types

50 Pages Posted: 21 Mar 2011 Last revised: 26 Jun 2015

See all articles by Carole Comerton-Forde

Carole Comerton-Forde

UNSW Business School; Financial Research Network (FIRN)

Charles M. Jones

Columbia Business School

Tālis J. Putniņš

University of Technology Sydney (UTS); Stockholm School of Economics, Riga

Date Written: March 18, 2015


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.

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

JEL Classification: G14, G19

Suggested Citation

Comerton-Forde, Carole and Jones, Charles M. and Putnins, Talis 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: or

Carole Comerton-Forde

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


Charles M. Jones (Contact Author)

Columbia Business School ( email )

3022 Broadway
Uris Hall Rm 101
New York, NY 10027
United States
(212) 854-4109 (Phone)

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Talis J. Putnins

University of Technology Sydney (UTS) ( email )

PO Box 123
+61 2 9514 3088 (Phone)

Stockholm School of Economics, Riga ( email )

Strelnieku iela 4a
Riga, LV 1010
+371 67015841 (Phone)

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