  There are some statistical anomalies in the Chinese stock market, i.e.,
positive return skewness, anti-leverage effect (positive returns induce higher
volatility than negative returns); and reverse volatility asymmetry
(contemporaneous return-volatility correlation is positive). In this paper, we
first confirm the existence of these anomalies using daily firm-level stock
return data on the raw returns, excess returns and normalized excess returns.
We empirically show that the asymmetry response of investors to news is one
cause of the statistical anomalies if short sales are constrained. Then in the
context of slow adoption of security lending policy, we conduct panel analysis
and empirically verify that the lifting of short sale constraints leads to
significantly less skewness, less anti-leverage effect and less reverse
volatility asymmetry. Positive skewness is a feature of lottery. Investors are
encouraged to bet on the upside lottery like potentials in the Chinese markets
where the stocks skew more to the upside when short sales are constrained.
