Short-Sale Constraints and Stock Prices: Evidence from Implementation of Securities Refinancing Mechanism in Chinese Stock Markets

Qualified Securities for Short-sale Refinancing (QSSR) is a unique trading mechanism that has exogenously increased the supply of loanable securities in Chinese stock markets. Using difference-in-differences (DID) methodology, this paper first to investigate whether and what extent additions QSSR eligibility list affect short selling activities price behaviors. The finds stocks added exhibit better liquidity less negative skewness returns than non-QSSR stocks. However, are more volatile display higher frequency extreme returns. In addition, on average, experience larger abnormal (ARs) cumulative (CARs) relative stocks, difference CARs positively related investor heterogeneity. results indicate mixed effects prices. Removing short-sale constraints can improve reduce bubbles, but also increase return volatility amplify market crashes.