Do Short-Sale Constraints Inhibit Information Acquisition? Evidence from the US and Chinese Markets

68 Pages Posted: 22 Jan 2021 Last revised: 13 Jan 2023

See all articles by Lixin (Nancy) Su

Lixin (Nancy) Su

Hong Kong Polytechnic University - School of Accounting and Finance

Sonia Man-Lai Wong

Sun Yat-sen University (SYSU) - Department of Finance and Insurance

Yuan Xue

Huazhong University of Science and Technology

Xiaofeng Zhao

Lingnan University - Department of Finance and Insurance

Date Written: January 15, 2021

Abstract

This study examines how short-sale constraints affect investors’ information acquisition and thereby shape stock price efficiency. By exploiting two settings that relax short-sale constraints in the US and China, respectively, we find that the removal of short-sale constraints increases investors’ information acquisition in both markets, but the effect is more prompt in China. Investors acquire value-relevant information, especially bad news, and improve their short-selling decisions in both markets. Lastly, information acquisition induced by the removal of short-sale constraints improves price efficiency. Our evidence shows that a reduction in trading frictions promotes information acquisition and improves price efficiency.

Keywords: Short-sale constraints, information acquisition, price efficiency, Regulation SHO

JEL Classification: G14, D83

Suggested Citation

Su, Lixin (Nancy) and Wong, Sonia Man-Lai and Xue, Yuan and Zhao, Xiaofeng, Do Short-Sale Constraints Inhibit Information Acquisition? Evidence from the US and Chinese Markets (January 15, 2021). Available at SSRN: https://ssrn.com/abstract=3766616 or http://dx.doi.org/10.2139/ssrn.3766616

Lixin (Nancy) Su

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

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong
852-2766-7033 (Phone)
852-2330-9845 (Fax)

Sonia Man-Lai Wong

Sun Yat-sen University (SYSU) - Department of Finance and Insurance ( email )

Tuen Mun
Hong Kong

Yuan Xue

Huazhong University of Science and Technology ( email )

1037# Luoyu Road, Hongshan Dist.
Wuhan, Hubei 430074
China

Xiaofeng Zhao (Contact Author)

Lingnan University - Department of Finance and Insurance ( email )

8 Castle Peak Rd
Tuen Mun
Hong Kong

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