A dynamic panel analysis of HKEx shorting ban's impact on the relationship between disagreement and future returns

- Disagreement and future returns correlate negatively in Hong Kong's shorting ban.
- It becomes weaker when the ban is lifted, especially for good earnings news.
- Results are free of endogeneity due to fixed effects or persistence of returns.

Using a dynamic panel regression, we find that investors' fresh disagreement negatively correlates with post earnings announcement returns of stocks under the short sale ban in Hong Kong Stock Exchange, while it becomes weaker or null when the ban is lifted. Moreover, we find a stronger impact of this policy change for good earnings news than for bad news. Our results are free of endogeneity due to stock-fixed effects, time effect, and persistence of returns relative to those obtained by OLS or static panel approach, and robust to changing the liquidity-control variable and widening the post event window.