Premium
Does Short Selling Enhance the Allocational Role of Stock Price? Evidence from Hong Kong
Author(s) -
Jiang Li,
Pang Lei
Publication year - 2016
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/jifm.12044
Subject(s) - stock (firearms) , monetary economics , arbitrage , economics , stock price , business , financial economics , mechanical engineering , paleontology , series (stratigraphy) , engineering , biology
We investigate the real effect of short selling on corporate investments and, in particular, examine whether short selling improves managerial learning from stock prices in making investment decisions. We find that short selling improves investment sensitivity to stock price, most likely through a channel that short selling increases stock price informativeness. Using the lifting of uptick rule for index arbitrageurs and market makers as an exogenous shock to short selling intensity, we confirm the causal effect of short selling on managerial learning. Overall, our evidence suggests that short selling enhances the role of stock price in resource allocation.