Liquidity, Information Asymmetry and Short Sales Constraints: Evidence from the Hong Kong Stock Market

45 Pages Posted: 26 Apr 2007 Last revised: 24 Sep 2012

See all articles by Jinghan Cai

Jinghan Cai

University of Scranton

Yuming Li

California State University

Le Xia

The University of Hong Kong

Date Written: December 1, 2006

Abstract

We use a natural experiment occurred on Hong Kong stock market to examine the effects of removing short sales constraints on several trading characteristics of underlying stocks. We find that the trading of underlying stocks become less active after the lift of short sales constraints; meanwhile the liquidity of underlying stocks is tightened and the information asymmetry among the investors aggravates. But we fail to find any evidence indicating that the lift of short sales constraints seriously destabilizes the market. We further provide a story of noise traders to explain these empirical findings.

Keywords: Short sale constraints, information asymmetry, liquidity, Hong Kong Stock market

JEL Classification: G12, G14, D82

Suggested Citation

Cai, Jinghan and Li, Yuming and Xia, Le, Liquidity, Information Asymmetry and Short Sales Constraints: Evidence from the Hong Kong Stock Market (December 1, 2006). Available at SSRN: https://ssrn.com/abstract=979688 or http://dx.doi.org/10.2139/ssrn.979688

Jinghan Cai

University of Scranton ( email )

800 Linden St
univ of scranton
Scranton, PA na 18510
United States

Yuming Li

California State University ( email )

School of Business Box 6848
Fullerton, CA 92834-9480
United States
714-278-2217 (Phone)
714-278-2161 (Fax)

Le Xia (Contact Author)

The University of Hong Kong ( email )

Pokfulam HK
Hong Kong

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