This paper examines the consequences of Chinese regulators deviating from a long-standing full bailout policy in addressing the distress of a city-level commercial bank. This policy shift led to a persistent widening of credit spreads and a significant decline in funding ratios for negotiable certificates of deposit issued by small banks relative to large ones. Our empirical analysis reveals a novel contagion mechanism driven by reduced confidence in future bailouts (implicit non-guarantee), contributing to the subsequent collapse of other small banks. However, in the longer term, this policy shift improved price efficiency, credit allocation, and discouraged risk-taking among small banks.

We study how investor composition is related to future return, trading volume, and price volatility in the cross- section of the music-content non-fungible tokens (music NFTs). Our results show that the breadth of NFT ownership negatively predicts weekly collection-level median-price returns and trading counts. In contrast, ownership concentration and the fraction of small wallets are positive predictors. The fraction of large NFT wallets is a bearish signal for future collection floor-price returns. Investor composition measures have weak predictive power on price volatility. Further analysis indicates that an artist’s Spotify presence moderates the predictive power of investor composition for future NFT returns and trading volume, consistent with the notion that reducing information asymmetry helps improve price efficiency.

This study examines how short-sale constraints affect investors’ information acquisition and thereby shape stock price efficiency. By exploiting two settings that relax short-sale constraints in the US and China, respectively, we find that the removal of short-sale constraints increases investors’ information acquisition in both markets, but the effect is more prompt in China. Investors acquire value-relevant information, especially bad news, and improve their short-selling decisions in both markets. Lastly, information acquisition induced by the removal of short-sale constraints improves price efficiency. Our evidence shows that a reduction in trading frictions promotes information acquisition and improves price efficiency.

This study examines how short-sale constraints affect investors’ information acquisition and thereby shape stock price efficiency. By exploiting two settings that relax short-sale constraints in the US and China, respectively, we find that the removal of short-sale constraints increases investors’ information acquisition in both markets, but the effect is more prompt in China. Investors acquire value-relevant information, especially bad news, and improve their short-selling decisions in both markets. Lastly, information acquisition induced by the removal of short-sale constraints improves price efficiency. Our evidence shows that a reduction in trading frictions promotes information acquisition and improves price efficiency.

This paper investigates the consequences of Chinese regulators deviating from a long-standing full bailout policy in addressing a city-level commercial bank’s distress. This event led to a persistent widening of credit spreads and a significant decline in funding ratios for negotiable certificates of deposit issued by small banks relative to large ones. Our empirical analysis pinpoints a novel contagion mechanism marked by diminished confidence in bank bailouts, which accounts for the subsequent collapse of several other small banks. However, the erosion of confidence in government guarantees enhances price efficiency and credit allocation while discouraging risk taking among small banks.

Using multiple short sale measures, we examine the predictive power of short sales for future stock returns in 38 countries from July 2006 to December 2014. We find that the days-to-cover ratio and the utilization ratio measures have the most robust predictive power for future stock returns in the global capital market. Our results display significant cross-country and cross-firm differences in the predictive power of alternative short sale measures. The predictive power of shorts is stronger in countries with non-prohibitive short sale regulations and for stocks with relatively low liquidity, high shorting fees, and low price efficiency.

Bank bailouts are systemic in China, having been extended to nearly all distressed banks, including those with no systemic importance. This paper investigates the consequences of regulators seizing control of Baoshang Bank, the country’s first bank failure in two decades. Despite the numerous liquidity and credit provision measures immediately implemented by bank regulators, we find that the collapse of this city-level commercial bank significantly exacerbated funding conditions in the market for negotiable certificates of deposit (NCD), resulting in liquidity distress for other banks. Our empirical analysis demonstrates that the spillover of Baoshang’s collapse is disproportionately concentrated in systemically unimportant (SU) banks, owing to diminished market confidence in government bailouts of SU banks, or implicit nonguarantee. We employ a difference-in-differences approach to show that the Baoshang event had a persistent and significant effect on SU banks’ NCD issuance, increasing credit spreads by 21.9 bps and the likelihood of issuance failure by 6.3%. Our empirical framework further enables us to examine the impact of China’s long-standing guarantee of SU banks, which we find impairs price efficiency, undermines market discipline, encourages excessive risk taking, and raises equity prices.

We document that firms' strategic reactions could hamper the effectiveness of RegTech. Our paper focuses on one RegTech innovation in China—online platforms launched by stock exchanges for investors to communicate with listed companies. We find that firms provide a number of no-answer replies—answers without clear, specific, or useful information—to investors' questions. Consistent with strategic information hoarding, no-answers are shown to be associated with subsequent unfavorable news. Moreover, firms with higher no-answer rates tend to have lower price efficiency, higher return volatility, and higher stock price crash risk. The evidence suggests regulators' objective of enhancing investor protection is not fully fulfilled.

We propose a model of trading in the over-the-counter corporate bond market where investors can buy and sell bonds through a dealer and can short bonds by borrowing them in the securities lending market. The model predicts that higher dealer inventory costs are associated with lower short interest for bonds, particularly for high-credit-quality bonds. We construct bond-level proxies for inventory costs and provide empirical evidence in support of the model's prediction. We find that much of the dramatic decline in short interest observed since the Great Financial Crisis (GFC) can be explained by an increase in proxies for inventory costs. We document that the short-sale constraints imposed by higher dealer inventory costs have had a negative impact on price efficiency. Our findings suggest that tighter post-GFC regulation may have had unintended consequences for bond market quality.

After the Chinese stock market dropped one-third in three weeks in June 2015, reportedly driven by lack of liquidity due to the fire sales by margin buyers, the government used hundreds of billions of dollars to purchase shares directly in the secondary market. We validate that margin trading is associated with the surge of stock market before the crisis. We find that firms in systemically important industries, firms with more political ties, and firms with high risk of falling into liquidity spiral are more likely to be rescued. More importantly, compared with matched un-rescued firms, rescued firms did not have higher stock return, but experienced higher volatility, lower liquidity, and lower price efficiency afterwards. Market quality even deteriorated further after the subsequent sale of the purchased shares. Last, rescued firms experience a modest decline in operational performance, while capital structure and investment remained the same. Our evidence suggest that a direct purchase rescue in the secondary stock market could generate serious unintended consequences.