IDEAS home Printed from https://ideas.repec.org/a/sae/emffin/v25y2026i3p287-312.html

Economic Policy Uncertainty and Stock Returns in China: The Role of Regulatory Short-selling Constraints

Author

Listed:
  • Binsheng Qian
  • Sunil Poshakwale

Abstract

We examine the association between economic policy uncertainty (EPU) and expected stock returns and how short-selling regulations in China moderate this relationship. Consistent with the overpricing effects literature, we find a negative EPU–return relationship before the introduction of margin trade and short-selling (MTSS) program in 2010. However, after implementation of MTSS, the relationship turned positive for stocks without short-selling constraints, reflecting investors’ demand for higher risk compensation. Using propensity score matching and difference-in-differences, we demonstrate that relaxation of short-selling constraints mitigates overpricing and generates positive uncertainty premium. Our findings highlight the importance of short selling in pricing of uncertainty and implications for policymakers and investors. JEL Codes: D53, D81, G11, G12

Suggested Citation

  • Binsheng Qian & Sunil Poshakwale, 2026. "Economic Policy Uncertainty and Stock Returns in China: The Role of Regulatory Short-selling Constraints," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 25(3), pages 287-312, September.
    • Handle: RePEc:sae:emffin:v:25:y:2026:i:3:p:287-312
    DOI: 10.1177/09726527251392742
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/09726527251392742
    Download Restriction: no
    File URL: https://libkey.io/10.1177/09726527251392742?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:emffin:v:25:y:2026:i:3:p:287-312. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.ifmr.ac.in .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.