Do short-sale constraints inhibit information acquisition? Evidence from regulation SHO

Su, Lixin (Nancy), Sonia Man-Lai Wong, Yuan Xue and Xiaofeng Zhao

Journal of Financial Markets, 2025, vol. 72, issue C

Abstract: We investigate how short-sale constraints influence investor information acquisition. Leveraging the U.S. Securities and Exchange Commission's (SEC's) Regulation SHO pilot program, we find that relaxed short-sale constraints lead to increased public information acquisition by investors. Investors acquire and process valuable information and utilize it to improve their short-selling decisions after the relaxation of short-sale constraints. We obtain similar findings using a quasi-natural experiment in China that lifted short-sale bans, supporting the external validity of our results. Collectively, our evidence demonstrates that reduced trading frictions promote information acquisition and contribute to price discovery.

Keywords: Short-sale constraints; Information acquisition; Price informativeness; Regulation SHO (search for similar items in EconPapers)
JEL-codes: D83 G14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:72:y:2025:i:c:s1386418124000636

DOI: 10.1016/j.finmar.2024.100945

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