Short selling, margin trading, and the incorporation of new information into prices

Chen, Jun; Kadapakkam, Palani Rajan; Yang, Ting

doi:10.1016/j.irfa.2016.01.002

Cited by 45 publications

(24 citation statements)

References 32 publications

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“…An interesting new testing ground is provided by China's lift of short selling bans for selected stocks in March 2010. Referring to this institutional setting, Chang et al (2014), Zhao et al (2014), Chen et al (2016) find that short selling activities contribute to stock market efficiency and entail a decrease in stock returns volatility, thus indirectly confirming the empirical evidence of the adverse effects of short selling bans established during financial crisis periods.…”

Section: Introductionsupporting

confidence: 70%

Short selling constraints and stock returns volatility: Empirical evidence from the German stock market

Bohl

Reher²,

Wilfling

2016

Economic Modelling

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Available online xxxx JEL classification: C5 G10 G1In this paper, we focus on the impact of short selling restrictions on stock returns volatility. In order to assess the potential effects econometrically, we apply two distinct versions of an asymmetric Markov-switching GARCH model to the short selling bans on stocks of financial enterprises in Germany, that were established between September 2008 and July 2010. We find empirical evidence that the financial crisis was accompanied by an increase in volatility persistence and that this effect was particularly pronounced for those stocks that were subject to short selling constraints. We interpret this finding as evidence of a destabilizing impact of short selling constraints on stock returns volatility.

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Section: Introductionsupporting

confidence: 70%

Short selling constraints and stock returns volatility: Empirical evidence from the German stock market

Bohl

Reher²,

Wilfling

2016

Economic Modelling

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“…The literature uses various price‐efficiency measures (Seguin and Jarrell, ; Morck et al ., ; Chordia et al ., ; Boehmer and Wu, ; Chang et al ., ; Chen et al ., ). Some measures (e.g.…”

Section: Methodsmentioning

confidence: 97%

“…Chen et al . () also suggested that prices become significantly more informative when stocks are allowed to be traded on margin in China.…”

Section: Margin Trading Overviewmentioning

confidence: 99%

“…We argue that these conflicting findings are due to the variation in measures that prior studies use to represent divergent aspects of price efficiency. For example, measures such as deviations in stock prices from their fundamental values (Hardouvelis, ), variance ratio (Chang et al ., ), cross‐sectional dispersions of stock return volatilities (Rytchkov, ) and pricing error (Chen et al ., ) represent the level of information incorporated into stock price, whereas cross‐autocorrelation between stock returns and lagged market returns (Chang et al ., ) and trading volume (Seguin, ; Seguin and Jarrell, ) are used to measure the speed of information incorporation.…”

Section: Introductionmentioning

confidence: 99%

“… Some studies consider this pilot programme, but mainly focus on its overall impact or on the impact of short selling only (Chang et al ., ; Sharif et al ., ; Chen et al ., ; Li et al ., ; Xiong et al ., ). …”

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confidence: 99%

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Margin trading and price efficiency: information content or price‐adjustment speed?

2018

Accounting & Finance

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The literature offers contradictory views on the effect of margin-trading activities on price efficiency. Based on data from a Chinese margin-trading pilot programme in 2010, we separate price efficiency into information content and price-adjustment speed and investigate the effect of margin-trading activity on price efficiency. We find that after adding to the eligible list, pilot stocks experience a decrease in information content, but an increase in priceadjustment speed. Furthermore, increased margin-buying activities are associated with lower information content, but faster price adjustment. Our results reconcile the debate over the effect of margin trading on price efficiency.

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Margin buying activity and stock market trading in China: Is there a connection?

Hong,

Wu,

Zhang

2024

Int. J Fin Econ

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This paper examines the dynamic linkage between margin buying activity and stock market trading in China. Built upon a multivariate DCC‐GJRGARCH model and the spillover index method, the results highlight a high dynamic conditional correlation between margin buying activity and stock market trading which shows apparent time‐varying features. Furthermore, there is a two‐way risk‐spillover relationship, with stock market trading playing a dominant role in risk transmission. More importantly, the level of risk contagion actually varies over time due to certain large external shocks. Margin buying activity tends to be a mean risk‐spillover receiver most time, whereas it acts as both a volatility risk‐spillover transmitter and a receiver over the entire sample period. The analysis thus implies that margin buying activity does have a close interrelationship with stock market trading in China, which has important implications for both regulators and investors.

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Short selling, margin trading, and the incorporation of new information into prices

Cited by 45 publications

References 32 publications

Short selling constraints and stock returns volatility: Empirical evidence from the German stock market

Short selling constraints and stock returns volatility: Empirical evidence from the German stock market

Margin trading and price efficiency: information content or price‐adjustment speed?

Margin buying activity and stock market trading in China: Is there a connection?

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