Short Selling and Dark Pool Volume

Managerial Finance, Vol. 46, 2020

35 Pages Posted: 12 Jul 2021 Last revised: 27 Jul 2021

See all articles by Thomas J. Boulton

Thomas J. Boulton

Miami University

Marcus V. Braga-Alves

Pace University - Lubin School of Business

Date Written: April 29, 2020

Abstract

Prior research posits that traders with short-lived information favor lit exchanges over dark pools due to execution certainty. This paper focuses on the relation between informed trading based on firm fundamentals and dark pool volume because the preferred venue for traders with longer-lived information is less certain. The proportion of trading volume executed in dark pools is positively correlated with short interest. This result is stronger for stocks that suffer from greater uncertainty and stocks targeted by transient institutional investors. Short sellers profit substantially from their information as subsequent returns are lower for heavily shorted stocks with greater dark pool volume.

Keywords: Dark pools; informed trading; liquidity; short selling; stock returns

JEL Classification: G10; G12

Suggested Citation

Boulton, Thomas J. and Braga-Alves, Marcus V., Short Selling and Dark Pool Volume (April 29, 2020). Managerial Finance, Vol. 46, 2020, Available at SSRN: https://ssrn.com/abstract=3882880 or http://dx.doi.org/10.2139/ssrn.3882880

Thomas J. Boulton (Contact Author)

Miami University ( email )

3028 Farmer School of Business
Oxford, OH 45056
United States
(513) 529-1563 (Phone)
(513) 529-8598 (Fax)

Marcus V. Braga-Alves

Pace University - Lubin School of Business ( email )

1 Pace Plaza
New York, NY 10038-1502
United States

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