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Economic Policy Uncertainty and Stock Returns in China: The Role of Regulatory Short-selling Constraints

Binsheng Qian & Sunil Poshakwale

Journal of Emerging Market Finance2025https://doi.org/10.1177/09726527251392742article
AJG 2ABDC B
Weight
0.37

Abstract

We examine the association between economic policy uncertainty (EPU) and expected stock returns and how short-selling regulations in China moderate this relationship. Consistent with the overpricing effects literature, we find a negative EPU–return relationship before the introduction of margin trade and short-selling (MTSS) program in 2010. However, after implementation of MTSS, the relationship turned positive for stocks without short-selling constraints, reflecting investors’ demand for higher risk compensation. Using propensity score matching and difference-in-differences, we demonstrate that relaxation of short-selling constraints mitigates overpricing and generates positive uncertainty premium. Our findings highlight the importance of short selling in pricing of uncertainty and implications for policymakers and investors. JEL Codes: D53, D81, G11, G12

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https://doi.org/https://doi.org/10.1177/09726527251392742

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@article{binsheng2025,
  title        = {{Economic Policy Uncertainty and Stock Returns in China: The Role of Regulatory Short-selling Constraints}},
  author       = {Binsheng Qian & Sunil Poshakwale},
  journal      = {Journal of Emerging Market Finance},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1177/09726527251392742},
}

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Evidence weight

0.37

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.16 × 0.4 = 0.06
M · momentum0.53 × 0.15 = 0.08
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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