The No-Short Return Premium

41 Pages Posted: 24 Jan 2017 Last revised: 29 Mar 2019

See all articles by Danling Jiang

Danling Jiang

College of Business, Stony Brook University

Xiaoming Li

Massey University - School of Economics and Finance (Albany)

Date Written: March 27, 2019

Abstract

Using the unique regulatory setting from the Hong Kong stock market with both shortable and no-short stocks, we document that no-short stocks on average earn significantly higher average returns than shortable stocks. Furthermore, stocks that comove more with the portfolio of no-short stocks than with the portfolio of shortable stocks on average earn higher subsequent abnormal returns. Additions to and deletions from the shorting list only partially contribute to the no-short return premium. To interpret our findings, we provide a theoretical model showing that rational investors’ discounting for the mispricing risk of no-short stocks can lead to the no-short return premium.

Keywords: Short-Sale Regulation; Return Comovement; Limits to Arbitrage; Mispricing

JEL Classification: G02; G10; G12; G28

Suggested Citation

Jiang, Danling and Li, Xiaoming, The No-Short Return Premium (March 27, 2019). Available at SSRN: https://ssrn.com/abstract=2903517 or http://dx.doi.org/10.2139/ssrn.2903517

Danling Jiang

College of Business, Stony Brook University ( email )

306 Harriman Hall
Stony Brook, NY 11794
United States

HOME PAGE: http://sites.google.com/site/danlingjiang

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)

Register to save articles to
your library

Register

Paper statistics

Downloads
161
Abstract Views
886
rank
184,174
PlumX Metrics