Are firm characteristics priced differently between opposite short-sales regimes?
Corresponding Author
Min Bai
School of Accounting, Finance and Economics, Waikato Management Division, University of Waikato, Hamilton, New Zealand
Correspondence Min Bai, School of Accounting, Finance and Economics, Waikato Management Division, University of Waikato, Hamilton 3240, New Zealand.
Email: mbai@waikato.ac.nz
Search for more papers by this authorCorresponding Author
Min Bai
School of Accounting, Finance and Economics, Waikato Management Division, University of Waikato, Hamilton, New Zealand
Correspondence Min Bai, School of Accounting, Finance and Economics, Waikato Management Division, University of Waikato, Hamilton 3240, New Zealand.
Email: mbai@waikato.ac.nz
Search for more papers by this authorAbstract
This paper examines how the short-sales constraints on stocks affect the pricing of firm characteristics—size, book-to-market ratio, liquidity, earnings-to-price ratio and dividend yield. Using a unique feature of Hong Kong regulations on short selling that, at each point of time, only a designated list of stocks can be sold short, we find that stocks not allowed to be sold short have higher adjusted returns, exhibit more prominent size effect and offer higher compensation for lagged illiquidity than stocks that can be sold short. The results also indicate that the presence of both short-sales constraints and opinion dispersion would cause contemporaneous returns to rise and future returns to fall by more than those caused by the opinion dispersion only. Practically, when financial analysts evaluate the stocks, or fund managers construct their trading strategies based on some financial anomalies, the shortability of the assets has to be a very important factor to be considered.
CONFLICT OF INTERESTS
The author declares that there are no conflict of interests.
Open Research
DATA AVAILABILITY STATEMENT
The data that support the findings of this study are available on request from the corresponding author. The data are not publicly available due to privacy or ethical restrictions.
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