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Session 6: Short Selling
Time:
Friday, 24/Jan/2025:
11:00am - 12:30pm
Session Chair: Carole Gresse , Université Paris Dauphine-PSL
Presentations
Stealthy Shorts: Informed Liquidity Supply
Amit Goyal1,2 , Adam Reed3 , Esad Smajlbegovic4 , Amar Soebhag 4,5
1 University of Lausanne; 2 Swiss Finance Institute; 3 University of North Carolina; 4 Erasmus School of Economics; 5 Robeco Quantitative Investments
Discussant: Sara Ain Tommar-Thomas (NEOMA Business School)
Short sellers are widely known to be informed, which would typically suggest that they
demand liquidity. We obtain comprehensive transaction-level data to decompose daily
short volume into liquidity-demanding and liquidity-supplying components. Contrary
to conventional wisdom, we show that the most informed short sellers are actually
liquidity suppliers, not liquidity demanders. They are particularly informative about
future returns on news days and trade on prominent cross-sectional return anomalies.
Our analysis suggests that market making and opportunistic risk-bearing are unlikely
to explain these findings. Instead, our results align with recent market microstructure
theory, pointing to the strategic liquidity provision by informed traders.
Mutual Fund Shorts and the Marginal Benefits of Acquiring Information
Boone Bowles1 , Adam Reed 2
1 Texas A&M University; 2 University of North Carolina
Discussant: Vincent Tena (Paris Dauphine University)
We study the information acquisition behavior of mutual funds and the performance of both their long and short positions. We show that managers learn more about their shorts than their longs because the benefit of acquiring information about shorts is larger. Mutual funds' shorts also generate better returns than their longs, but, at least with respect to shorts, performance and information acquisition are inversely related. Though surprising at first glance, this follows from standard theory and we show that managers acquire less information about certain high performing short positions; the clear winners.