Short-Selling and Floating Constraints and Cross-Listed Stock Prices

33 Pages Posted: 17 Jul 2009

See all articles by Steven Shuye Wang

Steven Shuye Wang

School of Business, Renmin University of China

Wei Li

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: July 14, 2009

Abstract

We investigate the joint effects of short-selling, floating constraints and heterogeneous beliefs on stock prices by using a unique data set of cross-listed Chinese stocks. Because domestic A-shares are subject to both short-selling and floating restrictions while foreign H-shares are not, H-share price discount represents a trading restriction induced price bubble. The H-share price discounts are significantly and positively correlated with short-sale transactions of H-shares, and negatively correlated with the non-tradable A-share reform variable, after controlling for market-specific sentiment and other factors. We also find that short-selling significantly widens the price discounts in bullish but not in bearish market period; and in market return up days but not in down days.

Keywords: short-sale constraints, floating restriction, heterogeneous beliefs, sentiment, cross listing

JEL Classification: G10, G12, G15

Suggested Citation

Wang, Steven Shuye and Li, Tina Wei, Short-Selling and Floating Constraints and Cross-Listed Stock Prices (July 14, 2009). Available at SSRN: https://ssrn.com/abstract=1433769 or http://dx.doi.org/10.2139/ssrn.1433769

Steven Shuye Wang (Contact Author)

School of Business, Renmin University of China ( email )

Beijing
China
8610-6251-8856 (Phone)

HOME PAGE: http://rbs.org.cn

Tina Wei Li

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

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