When Do Informed Short Sellers Trade? Evidence from Intraday Data and Implications for Informed Trading Models
52 Pages Posted: 18 Feb 2021 Last revised: 13 Sep 2021
Date Written: February 16, 2021
Using intraday 2015-2019 short sale data from CBOE and FINRA, we examine the intraday time patterns and information content of on-exchange and off-exchange shorting. Midday short sales and those near the open strongly and negatively predict the cross-section of stock returns at daily horizons and up to 12 weeks ahead. Short sales near the close are only informative at next-day horizons. We also connect earnings/analyst news to shorting flows. Shorting near the open reacts strongly to and anticipates bad-news releases. Shorting near the close only anticipates post-close firm news. Our evidence supports both Kyle (1985) and Holden and Subrahmanyam (1992).
Keywords: short selling, intraday trading, information content, off-exchange trading, dynamic informed trading models, institutional investors, retail investors
JEL Classification: G11, G12, G14, G23
Suggested Citation: Suggested Citation