Since 2012, all European Union countries have required disclosure of large short positions. This reduces short interest, bid-ask spreads, and the informativeness of prices. After specific disclosures, short-run abnormal returns are insignificantly negative, but 90-day cumulative abnormal returns are a statistically significant −5.23%. We find disclosures are likely to be followed by other disclosures, especially when the initial discloser is large or centrally located. However, there is no subsequent increase in short interest, and prices do not subsequently reverse. These results indicate that large short sellers are well informed, and that disclosures are not being used to coordinate manipulative attacks.

We examine returns, order flow, and market conditions in the minutes before, during, and after NYSE and Nasdaq short sales. We find two distinct types of short sales: those that provide liquidity, and those that demand it. Liquidity-supplying shorts are strongly contrarian at intraday horizons. They trade when spreads are unusually wide, facing greater adverse selection. Liquidity-demanding shorts trade when spreads are narrow and tend to follow short-term price declines. These results support a competitive rational expectations model where both market-makers and informed traders short, indicating that these two shorting types are integral to both price discovery and liquidity provision.

Since 2012, all European Union countries have required disclosure of large short positions. This reduces short interest, bid-ask spreads, and the informativeness of prices. After specific disclosures, short-run abnormal returns are insignificantly negative, but 90-day cumulative abnormal returns are a statistically significant -5.23%. We find disclosures are likely to be followed by other disclosures, especially when the initial discloser is large or centrally located. However, there is no subsequent increase in short interest, and prices do not subsequently reverse. These results indicate that large short sellers are well informed, and that disclosures are not being used to coordinate manipulative attacks.