Intermarket Competition: Evidence from Short Sales

Abstract

Using a novel collection of off-exchange trade data, I study where short sellers exploit their well-documented information advantage. I find that short sales comprise a greater proportion of exchange trading than dark pool trading. I find stronger evidence of return predictability for exchange short sales than for dark pool short sales. In periods leading up to unscheduled negative corporate news releases, I find evidence of increased exchange short sales. I find evidence of increased exchange short sale return predictability prior to news releases. My results indicate that dark pools host a different composition of trade than exchanges.Doctor of Philosoph