Informed Trading During the Intraday: The Case of Short Sellers

Theory in Admati and Pfleiderer (1988) predicts that informed traders will concentrate their trading at the beginning and end of the trading day when markets are thick. Motivated by these predictions, we examine the trading behavior of informed short sellers during the intraday period. While our tests show that short-selling activity is highest at the beginning and end of the trading day, we find that contrarian short selling exhibits a reverse U-shaped intraday pattern. To the extent that contrarian trading represents informed short selling, this reverse U-shaped intraday pattern indicates that informed short sellers concentrate their trading during the middle of the trading day. We also examine the negative relation between current short activity and subsequent 15-minute returns. Results show that this negative relation is relatively constant across the intraday indicating that the informed short selling is not unusually high at the beginning and end of the trading day.