Short-sale constraints and stock price informativeness |
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Affiliation: | 1. Graduate School of Management and Economics, Sharif University of Technology, Tehran, Iran;2. Sawyer Business School, Suffolk University, Boston, MA, United States |
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Abstract: | Morck, Yeung, and Yu (2000), in their pioneering study of international differences in stock price synchronicity, emphasize the effect of market development on investors' ability to incorporate firm-specific information into prices. We use a unique institutional feature in the Hong Kong market to investigate one of the important tools investors use to do this and hence reduce stock price synchronicity: short selling. Examining the cross-sectional and time-series variation in short-sale constraints in the Hong Kong market, we find that after the removal of short-sale constraints, stock prices become more informative and move less in tandem with the market. |
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