Abstract: We study the effect of short-selling and margin-trading on the price efficiency and stabilization of stocks on the GEM and SME Boards. Utilizing the lift of bans on short-selling and margin-trading for stocks on a designated list in September 2013, we find that short-selling is followed by short-term negative cumulative abnormal return, while margin-trading leads to short-term positive cumulative abnormal return. Moreover, price efficiency decreases after the ban, while price stabilization is enhanced. Lower price efficiency is associated with intensified margin buying and short covering. Short selling, however, increases efficiency. We also find that margin buying and short selling enhance price stabilization. Our findings are significantly different from previous studies of the Chinese Main Board market.