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

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

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.

Suggested Citation

  • Su, Lixin (Nancy) & Wong, Sonia Man-Lai & Xue, Yuan & Zhao, Xiaofeng, 2025. "Do short-sale constraints inhibit information acquisition? Evidence from regulation SHO," Journal of Financial Markets, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:finmar:v:72:y:2025:i:c:s1386418124000636
    DOI: 10.1016/j.finmar.2024.100945
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    More about this item

    Keywords

    Short-sale constraints; Information acquisition; Price informativeness; Regulation SHO;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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