We study the impact of short-sale constraints on market prices and liquidity in imperfectly competitive markets in which market-makers have market power. We show that, with or without information asymmetry, short-sale constraints decrease bid prices, but increase bid-ask spreads and...

The extant literature concludes that binding short-sale constraints restrict negative information revelation because short sellers cannot trade to the full extent to reveal their information. However, it largely ignores information conveyed by informative sales. In contrast, our model predicts...