Using the unique regulatory setting from the Hong Kong stock market with both shortable and no-short stocks, we document that no-short stocks on average earn significantly higher average returns than shortable stocks. Furthermore, stocks that comove more with the portfolio of no-short stocks than with the portfolio of shortable stocks on average earn higher subsequent abnormal returns. Additions to and deletions from the shorting list only partially contribute to the no-short return premium. To interpret our findings, we provide a theoretical model showing that rational investors’ discounting for the mispricing risk of no-short stocks can lead to the no-short return premium.