When Do Informed Short Sellers Trade? Evidence from Intraday Data and Implications for Informed Trading Models

52 Pages Posted: 18 Feb 2021 Last revised: 18 Jun 2021

Date Written: February 16, 2021

Abstract

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

Hu, Danqi and Jones, Charles M. and Zhang, Xiaoyan, When Do Informed Short Sellers Trade? Evidence from Intraday Data and Implications for Informed Trading Models (February 16, 2021). Available at SSRN: https://ssrn.com/abstract=3761523 or http://dx.doi.org/10.2139/ssrn.3761523

Danqi Hu

Northwestern University - Kellogg School of Management ( email )

2211 campus drive
EVANSTON, IL 60208
United States

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)

HOME PAGE: http://https://www8.gsb.columbia.edu/cbs-directory/detail/cj88

Xiaoyan Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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