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Short-sale constraints and cross-predictability: Evidence from Chinese market

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  • Li, Rui
  • Li, Chenchen
  • Yuan, Jinjian

Abstract

We present evidence demonstrating that short-sale constraint is another nonnegligible cause why information diffuses slowly across the stock market. Based on data from Chinese market, we document several findings showing that short-sale constraint significantly delays incorporating the information from supply-chain industries. First, negative information from supply-chain industries exhibits stronger predictive ability; second, the cross-predictability of the set of stocks decreases substantially after the removal of short prohibitions; third, the cross-predictability of short-prohibited stocks is more pronounced than that of short-allowed stocks.

Suggested Citation

  • Li, Rui & Li, Chenchen & Yuan, Jinjian, 2022. "Short-sale constraints and cross-predictability: Evidence from Chinese market," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 166-176.
    • Handle: RePEc:eee:reveco:v:80:y:2022:i:c:p:166-176
    DOI: 10.1016/j.iref.2022.02.038
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    Cited by:

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    3. Liu, Chenye & Wu, Ying & Zhu, Dongming, 2022. "Price overreaction to up-limit events and revised momentum strategies in the Chinese stock market," Economic Modelling, Elsevier, vol. 114(C).

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    More about this item

    Keywords

    Short sale; Return cross-predictability; Gradual information diffusion; Chinese stock market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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