Hedge funds' short selling helps correct underpricing, benefiting stock prices.
Short selling can help correct underpricing in stocks. Hedge funds buy underpriced stocks more aggressively when they can short them, protecting their investments from market fluctuations. In Hong Kong, only certain stocks can be shorted, and when these become available, hedge funds buy underpriced stocks more aggressively. This increased involvement by hedge funds helps correct underpricing and moves stock prices closer to their true value.