Review of Quantitative Finance and Accounting

, Volume 52, Issue 1, pp 197–229 | Cite as

Public news announcements, short-sale restriction and informational efficiency

  • Siu Kai Choy
  • Hua Zhang
Original Research


In this paper, we address the question that with differences in opinion in reality, how quickly stocks incorporate news shocks when they are subject to different levels of short-sale constraints. Specifically, we examine the impact of short-sale restriction on stock price efficiency when firms make public earnings announcements. Using data from the Hong Kong stock market, where some stocks are eligible for and others are prohibited from short selling, we find significantly lower post-announcement returns with high economic magnitude for short-sale prohibited stocks with both positive and negative news shocks. The reduction in informational efficiency due to short-sale restriction persists several months after the earnings announcement. The informational inefficiency due to short-sale restriction is particularly severe for firms with negative announcement period shocks and subject to greater differences in opinion.


Public news Short-sale constraint Differences in opinion Informational efficiency 

JEL Classification




The authors acknowledge helpful comments on earlier versions of this paper from Warren Baily, Hank Bessembinder, Craig Doidge, Jay Ritter, Laura Starks, Cong Wang and seminar participants at the Shanghai University of Finance and Economics, University of Toronto, 2008 Northern Finance Association meeting, and 2010 FMA meetings.


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© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.King’s Business SchoolKing’s College LondonLondonUnited Kingdom
  2. 2.Department of FinanceThe Chinese University of Hong KongShatinHong Kong

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