Adam V. Reed, Mehrdad Samadi, and Jonathan S. Sokobin
Using a novel database on venue short sales and market design characteristics, we ask: Where do short sellers exploit their information advantage? Exchange short sales comprise a larger proportion of trading and are more informative about future prices than dark pool short sales, particularly in the presence of short-lived information. Our results indicate that short sellers value the immediacy of exchanges over the lower transaction costs of dark pools, as predicted by Zhu (2014). When examining market design characteristics, we find that dark pools offering VWAP crossing attract more short sales while those offering block trading attract fewer short sales.