| This dissertation consists of three essays on short selling. In the first essay, I find empirical evidence of short sellers' predatory practices. I show that traders extensively open short positions during significant intraday price drops and begin covering these positions, as the price approaches its minimum level for the day. Predatory short selling exacerbates price declines, while short covering enhances price reversals. Predators use aggressive order submission strategies and actively execute via ArcaEx to avoid abiding by the bid rule. Stocks that are most susceptible to predation have high institutional ownership, low historical returns, and high book-to-market ratios. Predatory events are fleeting, but recurring, contagious, and cannot be fully attributed to corporate or macroeconomic news releases. Predatory episodes are not good predictors of future returns.; In the second essay, I investigate short selling in a marketplace with three major competitors: SuperMontage, ArcaEx, and INET. A trade-by-trade inquiry reveals that short sellers' contrarian traits are fleeting and mostly result from opportunistic executions. Short sellers are predominantly liquidity providers who constantly monitor market liquidity and time executions to most favorable conditions. On average, short sellers collect more in transaction revenues than they spend on trading costs. Stock prices increase immediately following short sales. Short sales are often routed to ArcaEx and INET, most likely because the venues do not enforce the bid test.; In the third essay, I find that corporate insider purchases coincide with significant positive return reversals. Such reversals are rarely accompanied by corporate or media releases and are most likely caused by insider signaling through purchases. Insider signaling is more likely if the stock is actively shorted. I identify two types of short sellers who trade around insider purchases: (i) momentum short sellers who open new positions before insider purchase days and (ii) opportunistic short sellers who are active after such days. Additionally, I find evidence that information about purchases leaks out before insider activity is officially reported to the public. |
