Short-Selling Constraints and Stock-Valuation Pattern: A Regime-Event Analysis

46 Pages Posted: 22 Apr 2016

See all articles by Min Bai

Min Bai

Massey University; Independent; Jiangxi University of Finance and Economics

Xiaoming Li

Massey University - School of Economics and Finance (Albany)

Yafeng Qin

Massey University - School of Economics and Finance

Date Written: April 21, 2015

Abstract

Employing a novel approach of integrating regime analysis with event analysis, we examine the overall valuation pattern of stocks that traverse the short-sale-ban and the no-ban regime, employing data from the Hong Kong market. Switching from the ban to the no-ban regime, stocks initially undergo net cumulative undervaluation and then revert to fundamental valuation. Switching from the no-ban to the ban regime, stocks initially experience net cumulative excessive overvaluation and then revert to permanent overvaluation. The amount of net cumulative undervaluation is greater than the amount of net cumulative excessive overvaluation. This documented overall pattern offers a broad perspective on short-sale constraints and stock valuation.

Keywords: Short-sale ban; regime; stock valuation; opinion dispersion

JEL Classification: G12, G14

Suggested Citation

Bai, Min and Bai, Min and Li, Xiaoming and Qin, Yafeng, Short-Selling Constraints and Stock-Valuation Pattern: A Regime-Event Analysis (April 21, 2015). Applied Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2768090 or http://dx.doi.org/10.2139/ssrn.2768090

Min Bai

Massey University ( email )

Private Bag 11 222
Palmerston North, Manawatu 4442
New Zealand

Independent ( email )

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

Xiaoming Li (Contact Author)

Massey University - School of Economics and Finance (Albany) ( email )

Private Bag 102904
North Shore
Auckland, 0745
New Zealand
+64 9 4140800 ext. 43177 (Phone)
+64 9 441 8177 (Fax)

Yafeng Qin

Massey University - School of Economics and Finance ( email )

Tennent Dr
Palmerston North, 4474
New Zealand

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