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Which Shorts Are Informed?





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      Boehmer is at Mays Business School, Texas A&M University. Jones is at the Graduate School of Business, Columbia University. Zhang is at the Johnson Graduate School of Management, Cornell University. We thank Yakov Amihud, Doug Diamond, Amy Edwards, Joel Hasbrouck, Terry Hendershott, Owen Lamont, Mark Seasholes, Sorin Sorescu, Avanidhar Subrahmanyam (the referee), Michela Verardo, Ingrid Werner, and seminar participants at the 2006 American Finance Association Annual Meeting, BSI Gamma Conference, Cornell, Dauphine, Goldman Sachs Asset Management, HEC, the London School of Economics, the NBER Market Microstructure meeting, the NYSE, the Tinbergen Institute, the University of Chicago, and the University of Lausanne for helpful comments. We also thank the NYSE for providing system order data, and Jones is grateful to Ivy Asset Management for financial support.


We construct a long daily panel of short sales using proprietary NYSE order data. From 2000 to 2004, shorting accounts for more than 12.9% of NYSE volume, suggesting that shorting constraints are not widespread. As a group, these short sellers are well informed. Heavily shorted stocks underperform lightly shorted stocks by a risk-adjusted average of 1.16% over the following 20 trading days (15.6% annualized). Institutional nonprogram short sales are the most informative; stocks heavily shorted by institutions underperform by 1.43% the next month (19.6% annualized). The results indicate that, on average, short sellers are important contributors to efficient stock prices.