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.

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.