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Information and trade sizes: The case of short sales

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  • Blau, Benjamin M.
  • Van Ness, Bonnie F.
  • Van Ness, Robert A.

Abstract

In this study, we examine short selling of NASDAQ stocks and observe that more information about future returns is contained in small short sales than in medium-sized and large short sales, thus supporting the idea that NASDAQ short sellers stealth trade. These results are robust to different subsamples of stocks with and without tradable options and stocks that are more likely to face binding borrowing constraints. Further, these findings are contrary to the results in Boehmer, Jones, and Zhang (2008) who find that large NYSE short sales contain the most information. Combined, our study supports the idea that NASDAQ's bid test is less restricting than the NYSE's uptick rule and therefore attenuates the likelihood of stealth trading (Diether, Lee, & Werner, 2009a).

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Bibliographic Info

Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 49 (2009)
Issue (Month): 4 (November)
Pages: 1371-1388

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Handle: RePEc:eee:quaeco:v:49:y:2009:i:4:p:1371-1388

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Web page: http://www.elsevier.com/locate/inca/620167

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Keywords: Stealth trading Short selling;

References

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  1. Barclay, Michael J. & Warner, Jerold B., 1993. "Stealth trading and volatility : Which trades move prices?," Journal of Financial Economics, Elsevier, vol. 34(3), pages 281-305, December.
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  4. Lehmann, Bruce N, 1990. "Fads, Martingales, and Market Efficiency," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 1-28, February.
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  15. Alexander, Gordon J. & Peterson, Mark A., 2007. "An analysis of trade-size clustering and its relation to stealth trading," Journal of Financial Economics, Elsevier, vol. 84(2), pages 435-471, May.
  16. Figlewski, Stephen & Webb, Gwendolyn P, 1993. " Options, Short Sales, and Market Completeness," Journal of Finance, American Finance Association, vol. 48(2), pages 761-77, June.
  17. Bessembinder, Hendrik, 1999. "Trade Execution Costs on NASDAQ and the NYSE: A Post-Reform Comparison," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(03), pages 387-407, September.
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  21. Bruce N. Lehmann, 1988. "Fads, Martingales, and Market Efficiency," NBER Working Papers 2533, National Bureau of Economic Research, Inc.
  22. Karl B. Diether & Kuan-Hui Lee & Ingrid M. Werner, 2009. "It's SHO Time! Short-Sale Price Tests and Market Quality," Journal of Finance, American Finance Association, vol. 64(1), pages 37-73, 02.
  23. Senchack, A. J. & Starks, Laura T., 1993. "Short-Sale Restrictions and Market Reaction to Short-Interest Announcements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(02), pages 177-194, June.
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Citations

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Cited by:
  1. Blau, Benjamin M. & Brough, Tyler J., 2012. "Short sales, stealth trading, and the suspension of the uptick rule," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(1), pages 38-48.
  2. Blau, Benjamin M. & Smith, Jason M., 2014. "Autocorrelation in daily short-sale volume," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(1), pages 31-41.

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