Date of Award
Master of Science (MS)
Economics and Finance
In this thesis, I test hypothesis that informed trading will exhibit a U-shaped pattern and that informed trading concentrates at the beginning and the end of the day (Admati and Pfleiderer, 1988). Since prior research has shown that short sellers are generally informed traders (Diamond and Verrecchia, 1987; Senchack and Starks, 1993; Dechow et al, 2001; Desai et al., 2002; Boehmer, Jones, and Zhang, 2008; and Deither, Lee and Werner, 2009), this hypothesis is tested through analyzing short selling activity. In my initial tests, I find that the short ratio (short volume scaled by trade volume) does show a U-shaped pattern. However, when proxying informed short selling with the level of contrarian shorting activity and the return predictability contained in short selling, I fail to find support for a U-shaped pattern in informed trading. In fact, I find that contrarian short selling exhibits a reversed-U shaped pattern or a J-shaped pattern across the intraday. Further, the intraday return predictability contrained in short sales is generally constant throughout the intraday. Together, these findings reject the Admati and Pfleiderer's hypothesis and, if anything, demonstrate that the informed short selling tends to concentrate at the middle of the day.
Zhang, Yuzhe (Yan), "Estimation of Beta in a Simple Functional Capital Asset Pricing Model for High Frequency US Stock Data" (2012). All Graduate Plan B and other Reports. 140.
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