The effect of short sale constraints on analyst forecast quality: Evidence from a natural experiment in China

Hao Li, Zhisheng Li, Bingxuan Lin and Xiaowei Xu

Economic Modelling, 2019, vol. 81, issue C, 338-347

Abstract: We examine the effect of short selling on analyst forecast quality following the pilot program in China in 2010 that allows short selling for selected companies. We find that reduction in short sale constraints significantly improves analyst forecast quality for these pilot-firms when compared to non-pilot firms. Specifically, analyst forecast errors for pilot firms are smaller and forecast dispersions are narrower. Further, we show that the improvement of analyst forecast quality is more prominent for firms with lower prior price efficiencies and disclosure quality, and in locations with lower institutional development. Our findings suggest that short selling activities serve an important role in facilitating the speed of information incorporation and improving the information environment faced by firms.

Keywords: Short sale; Analyst forecast; Chinese market (search for similar items in EconPapers)
JEL-codes: G14 G15 G30 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:81:y:2019:i:c:p:338-347

DOI: 10.1016/j.econmod.2019.06.001

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