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The Loud Silence of Suppressed Short-Sale Demand
Jinjuan Ren1; Yinghui Yu2
Source PublicationSSRN Electronic Journal

Utilizing the special institutional setting in the Chinese securities market, we examine how suppressed short-sale demand influences stock valuations and price efficiency for stocks with no short-selling activities. Based on revealed short-sale volume of shortable stocks, we employ a characteristics model to estimate the suppressed short-sale demand for non-shortable stocks, with a higher short-sale demand being suppressed indicates a more binding short-sale constraint. We find that suppressed short-sale demand negatively predicts future returns, and such relation concentrates among firms with poor information environment. Consistent with Diamond and Verrecchia (1987)’s reduced-pricing-efficiency theory, we find that a higher suppressed short-sale demand is associated with a greater price delay and a stronger post-earnings-announcement-drift.

KeywordShort-sale Demand Chinese Market Price Efficiency Overvaluation
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Document TypeJournal article
CollectionFaculty of Business Administration
Affiliation1.University of Macau
2.Singapore University of Social Sciences
First Author AffilicationUniversity of Macau
Recommended Citation
GB/T 7714
Jinjuan Ren,Yinghui Yu. The Loud Silence of Suppressed Short-Sale Demand[J]. SSRN Electronic Journal,2018.
APA Jinjuan Ren,&Yinghui Yu.(2018).The Loud Silence of Suppressed Short-Sale Demand.SSRN Electronic Journal.
MLA Jinjuan Ren,et al."The Loud Silence of Suppressed Short-Sale Demand".SSRN Electronic Journal (2018).
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