Shorting at close range: A tale of two types | Zendy

Carole ComertonForde | Zendy; Charles M. Jones | Zendy; Tālis J. Putniņš | Zendy

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Shorting at close range: A tale of two types

Author(s) -

Carole ComertonForde,

Charles M. Jones,

Tālis J. Putniņš

Publication year - 2016

Publication title -

journal of financial economics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 11.673

H-Index - 256

eISSN - 1879-2774

pISSN - 0304-405X

DOI - 10.1016/j.jfineco.2016.05.002

Subject(s) - contrarian , market liquidity , monetary economics , economics , price discovery , order (exchange) , liquidity crisis , financial economics , market maker , business , finance , stock market , paleontology , horse , biology , futures contract

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.Restricted Access: Metadata Onl

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