Short sale constraints and the information content of trading

Jianguo Xu

China Economic Journal, 2010, vol. 3, issue 1, 87-104

Abstract: We examine changes in the information content of trading when short sale constraints between prohibition and restriction exist on a stock exchange. This is made possible by a unique institutional arrangement at the Stock Exchange of Hong Kong. It maintains a list of stocks which can be sold short under regulations. Stocks not on the list are prohibited from short selling. The list is revised on a quarterly basis based on predetermined criteria. We find that the probability of information-based trading (PIN) significantly increases when a stock is added to the list. Further analysis shows that this is mainly because uninformed traders are driven out of the market. Elimination of uninformed traders also causes the aggregate trading volume to decrease rather than increase. In comparison, the PIN does not change when a stock is dropped from the list. We also find that market liquidity, measured by volatility and bid–ask spreads, slightly decreases when a stock is added to the list and significantly increases when a stock is dropped from the list. Possible explanations are discussed.

Date: 2010
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/17538963.2010.487353 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:rcejxx:v:3:y:2010:i:1:p:87-104

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rcej20

DOI: 10.1080/17538963.2010.487353

Access Statistics for this article

China Economic Journal is currently edited by Tiechang Gao and Yiping Huang

More articles in China Economic Journal from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().