Short-selling activity and return predictability: evidence from the chinese stock marketLiu, L., Luo, D. and Zhao, N. (2019) Short-selling activity and return predictability: evidence from the chinese stock market. Emerging Markets Finance and Trade. pp. 1-23. ISSN 1558-0938 Full text not archived in this repository. It is advisable to refer to the publisher's version if you intend to cite from this work. See Guidance on citing. To link to this item DOI: 10.1080/1540496x.2019.1694895 Abstract/SummaryWe examine the informativeness of short selling in the Chinese stock market based on monthly and daily short-interest data from January 2011 to July 2018. We find that short selling negatively predicts future stock returns in China. The pattern is robust when controlling for firm size, book-to-market ratio, and liquidity. A long-short strategy using a short-interest ratio (SIR)—shares shorted to shares outstanding—generates a 0.865% monthly return. We also document that return predictability is stronger when short selling is restricted. Meanwhile, we examine the information content of short-selling activity, and we confirm that the significant negative relationship between preannouncement short activity and post-announcement period returns.
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