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

Lixin Nancy SU; Sonia Man-Lai WONG; Xue YUAN; Xiaofeng ZHAO

doi:10.1016/j.finmar.2024.100945

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

Lixin Nancy SU^*, Sonia Man-Lai WONG, Xue YUAN, Xiaofeng ZHAO

^*Corresponding author for this work

FACULTY OF BUSINESS

Research output: Journal Publications › Journal Article (refereed) › peer-review

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.

Original language	English
Article number	100945
Journal	Journal of Financial Markets
Early online date	14 Sept 2024
DOIs	https://doi.org/10.1016/j.finmar.2024.100945
Publication status	E-pub ahead of print - 14 Sept 2024

Bibliographical note

We appreciate the helpful comments from Yangyang Chen, Di Cui, Fangjian Fu and the conference and seminar participants at Asian Finance Association (AsianFA) Annual Conference. Xiaofeng Zhao acknowledges that the work described in this paper was supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China ([130354] Project No. LU 23500019).

Publisher Copyright: © 2024 Elsevier B.V.

Keywords

Information acquisition
Price informativeness
Regulation SHO
Short-sale constraints

Access to Document

10.1016/j.finmar.2024.100945

Cite this

@article{31c84dbc785e4accbaf15a12be16a443,

title = "Do short-sale constraints inhibit information acquisition? Evidence from Regulation SHO",

abstract = "We investigate how short-sale constraints influence investor information acquisition. Leveraging the U.S. Securities and Exchange Commission{\textquoteright}s (SEC{\textquoteright}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 = "Information acquisition, Price informativeness, Regulation SHO, Short-sale constraints",

author = "SU, {Lixin Nancy} and WONG, {Sonia Man-Lai} and Xue YUAN and Xiaofeng ZHAO",

note = "We appreciate the helpful comments from Yangyang Chen, Di Cui, Fangjian Fu and the conference and seminar participants at Asian Finance Association (AsianFA) Annual Conference. Xiaofeng Zhao acknowledges that the work described in this paper was supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China ([130354] Project No. LU 23500019). Publisher Copyright: {\textcopyright} 2024 Elsevier B.V.",

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doi = "10.1016/j.finmar.2024.100945",

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AU - SU, Lixin Nancy

AU - WONG, Sonia Man-Lai

AU - YUAN, Xue

AU - ZHAO, Xiaofeng

N1 - We appreciate the helpful comments from Yangyang Chen, Di Cui, Fangjian Fu and the conference and seminar participants at Asian Finance Association (AsianFA) Annual Conference. Xiaofeng Zhao acknowledges that the work described in this paper was supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China ([130354] Project No. LU 23500019). Publisher Copyright: © 2024 Elsevier B.V.

PY - 2024/9/14

Y1 - 2024/9/14

N2 - 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.

AB - 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.

KW - Information acquisition

KW - Price informativeness

KW - Regulation SHO

KW - Short-sale constraints

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U2 - 10.1016/j.finmar.2024.100945

DO - 10.1016/j.finmar.2024.100945

M3 - Journal Article (refereed)

SN - 1386-4181

JO - Journal of Financial Markets

JF - Journal of Financial Markets

M1 - 100945

ER -

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

Abstract

Bibliographical note

Keywords

Access to Document

Other files and links

Short-sale Constraints and Access to Management: Evidence from a Randomized Experiment (賣空限制和管理層接觸：來自隨機實驗的證據)

Cite this

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

Abstract

Bibliographical note

Keywords

Access to Document

Other files and links

Projects

Short-sale Constraints and Access to Management: Evidence from a Randomized Experiment (賣空限制和管理層接觸：來自隨機實驗的證據)

Cite this