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AbstractWe document an increase in limit order cancellation activity over the last decade and examine the impact of cancellation activity on market quality. Additionally, we test theoretical models pertaining to cancellation activity and study the differences in cancellation activity among the three largest exchanges. We find cancellation activity is detrimental to market quality. As predicted by theory, we find that cancellation activity increases with increases in the frequency with which traders contact the market and with increases in the uncertainty of the arrival rate of impatient traders. Finally, we document significant differences in cancellation activity between exchanges.

AbstractIn this article, we compare trade size and price clustering of short sales with regular trades. We find that short sales cluster less on round sizes and round prices than do nonshort trades. When price tests are suspended, both trade size and price clustering markedly increase for short sales although the difference between shorts and nonshorts remains significant during the postsuspension period. These results are consistent with the idea that because of execution uncertainty caused by price tests, short sellers are less concerned with cognitive processing costs, negotiations costs, and the costs associated with revealing information through trade sizes.

AbstractThis study directly compares the level and return predictability of short selling for NYSE stocks to a matched sample of Nasdaq stocks. When considering trading that executes on all exchanges, we document that the Nasdaq has greater levels of short selling, relative to total trading activity, than the NYSE. However, Nasdaq has less relative short activity than the NYSE when considering short selling that executes on the primary exchange. When comparing the contrarian trading behavior and the return predictability of short sellers, we show that Nasdaq short sellers are more contrarian in contemporaneous and past returns and better at predicting negative returns than NYSE short sellers. These results are robust in each trade‐size category.

AbstractResearch documents a U‐shaped intraday pattern of returns. We examine which trade sizes drive the U‐shaped pattern and find that intraday price changes from larger trades exhibit a U‐shaped pattern whereas price changes from smaller trades show a reverse U‐shaped pattern. We argue that price changes from smaller trades are higher during the middle of the day because informed investors break up their trades to disguise their information when intraday volume is low. Price changes from larger trades are likely higher at the beginning and end of the day because high volume allows informed investors to increase their trade size without revealing their information to the market.