While short-sales constraints have been widely imposed due to the current credit crunch, theories disagree in their implications on the stock prices. This paper takes advantage of a natural experiment in Taiwan to test their effect on price delays. Since September 1998, short-selling is banned at a price below the close price of the previous trading day. The new rule creates unique daily dynamics of short-sales constraints. Unlike existing proxies, the dynamic constraints do not suffer from potential endogeneity or reverse causality. Moreover, the timely observable constraints are ideal for testing the rational expectation models, in which investors have to be aware of the tightness of the constraints. We extend the empirical methodology in Hou and Moskowitz (2005) and find no evidence of price delay. Our results are in line with Diamond and Verrechia (1987), who argue short-sales constraints do not necessarily bias the prices. We also study the effect of daily price limits on the price delay and find it increases significantly if stocks hit their price limits on the previous trading day.