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Public news announcements, short-sale restriction and informational efficiency

Author

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  • Siu Kai Choy

    (King’s College London)

  • Hua Zhang

    (The Chinese University of Hong Kong)

Abstract

In this paper, we address the question that with differences in opinion in reality, how quickly stocks incorporate news shocks when they are subject to different levels of short-sale constraints. Specifically, we examine the impact of short-sale restriction on stock price efficiency when firms make public earnings announcements. Using data from the Hong Kong stock market, where some stocks are eligible for and others are prohibited from short selling, we find significantly lower post-announcement returns with high economic magnitude for short-sale prohibited stocks with both positive and negative news shocks. The reduction in informational efficiency due to short-sale restriction persists several months after the earnings announcement. The informational inefficiency due to short-sale restriction is particularly severe for firms with negative announcement period shocks and subject to greater differences in opinion.

Suggested Citation

  • Siu Kai Choy & Hua Zhang, 2019. "Public news announcements, short-sale restriction and informational efficiency," Review of Quantitative Finance and Accounting, Springer, vol. 52(1), pages 197-229, January.
    • Handle: RePEc:kap:rqfnac:v:52:y:2019:i:1:d:10.1007_s11156-018-0707-8
    DOI: 10.1007/s11156-018-0707-8
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    References listed on IDEAS

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    Cited by:

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    2. Haiyan Jiang & Ahsan Habib & Mostafa Monzur Hasan, 2022. "Short Selling: A Review of the Literature and Implications for Future Research," European Accounting Review, Taylor & Francis Journals, vol. 31(1), pages 1-31, January.
    3. In-Mu Haw & Wenming Wang & Wenlan Zhang & Xu Zhang, 2022. "Capturing the straw in the wind: do short sellers trade on customer information?," Review of Quantitative Finance and Accounting, Springer, vol. 58(4), pages 1363-1394, May.

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    More about this item

    Keywords

    Public news; Short-sale constraint; Differences in opinion; Informational efficiency;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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