Economic policy uncertainty and short-selling

Purpose This study aims to investigate short-sellers’ perception of economic policy uncertainty and their decision-making mechanisms in China’s A-share market. Design/methodology/approach Using empirical data from 2010 to 2024, this study examines the relationship between economic policy uncertainty and short-selling levels. The analysis explores how short-sellers assess economic policy uncertainty by examining stock volatility and investor attention, which subsequently influence their short-selling decisions. Findings The results reveal a significant positive correlation between economic policy uncertainty and short-selling levels. Furthermore, firm heterogeneity significantly moderates this relationship. Specifically, the impact of economic policy uncertainty on short-selling is more pronounced in non-state-owned enterprises, firms with CEO/chair dual roles, and those with a high proportion of managerial shareholding. These findings remain robust across a series of sensitivity tests. Originality/value This study contributes to the literature by providing empirical evidence on how short-sellers interpret and respond to economic policy uncertainty in an emerging market. It also underscores the importance of firm-specific characteristics in moderating this effect, offering new perspectives for both academic research and practical applications.