Does Short Selling Disclosure Decrease the Liquidity of Individual Stocks?

This paper examines the short-term impact of short selling disclosure on individual stock liquidity and its mechanism using a dynamic panel regression model and Chinese Growth Enterprise Market data. The study results indicate that short selling disclosure reduces the short-term liquidity of stocks and has a significant impact on these stocks with high short selling ratio, high circulating market value, low turnover rate and large amplitude, while it has no significant impact on stocks with low short selling ratio, low circulating market value, high turnover rate and small amplitude. This indirectly proves that short selling trading is an informed transaction. These conclusions not only supplement empirical evidence about the impact of short selling disclosure on liquidity for the existing literature, but also provide some useful references for securities market regulators to develop the short selling market and improve the quality of the stock market.