Margin purchases, short sales and stock return volatility in China: Evidence from the COVID-19 outbreak

Corporate governance and stock performance: The case of COVID-19 crisis

“…Using country-level data, a series of studies has shown that COVID-19 significantly increases the volatility of stock market indexes, and the higher uncertainty and stronger investor sentiment during the pandemic contribute to this result (Albulescu, 2021;Chatjuthamard et al, 2021;Engelhardt et al, 2021;Tripathi and Pandey, 2021;Uddin et al, 2021). 1 Likewise, several studies focusing on firm-level data also show that overall COVID-19, associated with high uncertainty, results in higher volatility (Höhler and Lansink, 2021;Lin et al, 2021;Mazur et al, 2021;Yang and Yang, 2021). Höhler and Lansink (2021) further indicate that the impact of COVID-19 on volatility varies across firms and that sectors less adversely affected by COVID-19, such as food retailers, have lower stock price volatility than others during the pandemic.…”

Time-Varying Effect of Short Selling on Market Volatility During Crisis: Evidence from COVID-19 and War in Ukraine

“…On the Covid-19 outbreak, few studies have examined its impact on market volatility (see Albulescu, 2021;Baker et al, 2020;Zaremba et al, 2020) but little evidence is provided on the impact of short sellers on volatility. In the literature, our paper is close to the recent study of Lin et al (2022) which examines the effect of margin trading and short selling on stock return volatility. They show no evidence that short selling destabilizes the stock market and observe that intensified short selling effectively reduces return volatility when infection risk is high.…”

“…They show no evidence that short selling destabilizes the stock market and observe that intensified short selling effectively reduces return volatility when infection risk is high. While Lin et al (2022) investigate the Chinese stock market, our paper focuses on the US stock market and extends the data to cover the recovery period of Covid-19 and the onset of the Russian-Ukraine conflict.…”