Trade-Size and Price Clustering: The Case of Short Sales

Abstract

Short sellers are informed (Diamond and Verrecchia, 1987, Aitken et al., 1998, and Diether, Lee, and Werner, 2007) and the information contained in short sales is driven by larger short-sale sizes (Boehmer, Jones, and Zhang, 2008). We examine whether short sales cluster on round prices and round trade sizes. Our findings show that short sellers prefer round sizes and round prices less than non-short traders, which provides evidence that short sellers are less concerned with negotiation costs, cognitive processing costs, and the costs of revealing information to the market. Further, we find evidence suggesting that size and price rounding decisions are not correlated on the NYSE and are negatively correlated for our Nasdaq sample. Unrounded short-sales are more informed than rounded short sales and large unrounded short sales are the most informed as they are able to predict the greatest negative intraday returns.