Available online at www.sciencedirect.com Journal of Financial Markets 16 (2013) 308–330 Short sales and put options: Where is the bad news first traded? $ Xiaoting Hao a , Eunju Lee b , Natalia Piqueira c,n a Sheldon B. Lubar School of Business, University of Wisconsin-Milwaukee, Milwaukee, WI 53211, USA b C.T. Bauer College of Business, University of Houston, Houston, TX 77204, USA c The Brattle Group, Washington, DC 20036, USA. Received 9 March 2012; received in revised form 21 August 2012; accepted 12 September 2012 Available online 2 November 2012 Abstract Although the literature provides strong evidence supporting the presence of informed trading in both the option and the short equity markets, it is not clear which market attracts more informed trading. Using a unique dataset that covers intraday transaction data in the option and short equity markets, we investigate informed trading in a cross-market environment by explicitly studying the lead–lag relationship between the put net trade volume and short sales of the underlying stock. Our high frequency analysis shows that in general short sales contain more information. However, put options become more informative before the release of negative earnings announcements. & 2012 Elsevier B.V. All rights reserved. JEL classification: G14 Keywords: Put option; Short sales; Informed trading; Earnings announcements www.elsevier.com/locate/finmar 1386-4181/$ - see front matter & 2012 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.finmar.2012.09.005 $ We thank the Editor Amit Goyal, an anonymous referee, Alex Boulatov, Tom George, Kris Jacobs, Archana Jain, Praveen Kumar, Bruce N. Lehmann, Stuart Turnbull, and participants at the 2010 Financial Management Association Annual Meeting and the 2011 Midwest Finance Association Annual Meeting for helpful comments and suggestions. We thank the C.T. Bauer College of Business for providing access to the BAuer Research DataSet (BARDS), and Yadira Taylor for her assistance with this database. n Corresponding author. E-mail addresses: haox@uwm.edu (X. Hao), elee@bauer.uh.edu (E. Lee), Natalia.Piqueira@brattle.com (N. Piqueira).