Short-sale constraints and cross-predictability: Evidence from Chinese market

Rui Li, Chenchen Li and Jinjian Yuan

International Review of Economics & Finance, 2022, vol. 80, issue C, 166-176

Abstract: We present evidence demonstrating that short-sale constraint is another nonnegligible cause why information diffuses slowly across the stock market. Based on data from Chinese market, we document several findings showing that short-sale constraint significantly delays incorporating the information from supply-chain industries. First, negative information from supply-chain industries exhibits stronger predictive ability; second, the cross-predictability of the set of stocks decreases substantially after the removal of short prohibitions; third, the cross-predictability of short-prohibited stocks is more pronounced than that of short-allowed stocks.

Keywords: Short sale; Return cross-predictability; Gradual information diffusion; Chinese stock market (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:80:y:2022:i:c:p:166-176

DOI: 10.1016/j.iref.2022.02.038

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