Short-selling, margin-trading, and price efficiency: Evidence from the Chinese market

Chang, Eric C.; Luo, Yan; Ren, Jinjuan

doi:10.1016/j.jbankfin.2013.10.002

Cited by 244 publications

(128 citation statements)

References 33 publications

(63 reference statements)

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“…These authors refer to lower market quality at the period of short sale restrictions. The total cross-autocorrelation is also smaller when short sale is allowed (for period t = 0 and t = 2) and price discovery is faster, which correspond with Bris et al (2007) or Chang et al (2007Chang et al ( , 2014 that show that the short sale restrictions pushed stock prices upwards. Tabs.…”

Section: Resultsmentioning

confidence: 91%

How Did Short Sale Ban Affect German Capital Market Risk?

Linnertová¹

2017

Acta Univ. Agric. Silvic. Mendelianae Brun.

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The problem of short sale is a popular issue of stock trading and efficiency of pricing. Most regulatory authorities around the world adopted in the period 2007-2010 ad hoc bans on short selling. This paper provides an examination of an impact of the short sale regulation on the German capital market during crisis period 2008-2010. The purpose is to identify effects of the short sale regulation on level of systematic risk on German capital market and to investigate the discovery of stock prices of German blue chips at the period from May 2007 to April 2011 and three sub periods which demonstrate different regulatory approach to naked short sale regulation. The results suggest that short sale ban affects the level of systematic risk in the German market and prolongs a price reaction on new information. Further, short sale ban limits activities of investors with bearish view. After adoption of short sale ban the level of systematic risk increases and not only banned stocks are affected by the regulation. Finally, at the analyzed period the problem of negative information corporation in stock prices has arisen. Thereafter, the short sale ban is lifted the level of systematic risk decrease and there are not significant differences for banned and not banned stocks. Further, the price efficiency measured by autocorrelation also decreased after ban is lifted.

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Section: Resultsmentioning

confidence: 91%

How Did Short Sale Ban Affect German Capital Market Risk?

Linnertová¹

2017

Acta Univ. Agric. Silvic. Mendelianae Brun.

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“…Stocks will be overpriced when there are binding short sales constraints as pessimists are restricted from trading on their beliefs. Many empirical studies find subsequent significant negative stock returns upon the lifting of short sales bans/constraints, which largely support the overvaluation view (Bris et al, 2007;Chang et al, 2007Chang et al, , 2014Diether et al, 2009;Figlewski, 1981;Jones & Lamont, 2002).…”

Section: List Of Tablesmentioning

confidence: 90%

“…In addition, their model indicates that the prices of stocks without the eligibility of short sales will have a delayed speed of adjustment to unfavourable private information as short sellers' activities are limited in the market. Due to the lack of data and to difficulties in characterising the speed of price adjustment, only a few papers empirically test the prediction of Diamond & Verrecchia (1987), namely that short sales constraints slow down the process of price discovery (Beber & Pagano, 2013;Boehmer & Wu, 2013;Bris et al, 2007;Chang et al, 2014;Chen & Rhee, 2010;Saffi & Sigurdsson, 2010).…”

Section: List Of Tablesmentioning

confidence: 99%

“…In the presence of short sales constraints, price transmissions are asymmetric, which can cause overvalua- tion (Miller, 1977) and a delay in price adjustment to new information (Diamond & Verrecchia, 1987). Existing studies tend to focus on the relationship between short sales and overvaluation (Bris et al, 2007;Chang et al, 2007Chang et al, , 2014Diether et al, 2009;Figlewski, 1981;Jones & Lamont, 2002). However, only a few papers examine the speed of price adjustment to new information.…”

Section: Introductionmentioning

confidence: 99%

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Short Sales and Price Discovery in the Hong Kong Stock Market

Wang

2015

SSRN Journal

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“…We then test Miller's (1977) hypothesis by investigating the relation between the divergence of bids and the long-term performance of the stock. Our sample fits Miller's (1977) theoretical assumptions since most Chinese firms face stringent short-sale constraints (Chang et al, 2014).…”

Section: Resultsmentioning

confidence: 78%

Three Essays on Empirical Corporate Finance

Han¹

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This thesis comprises three essays on empirical corporate finance.The first essay provides a new explanation for investment-cash flow sensitivity from the perspective of CEO inside debt holdings. We examine the effect of CEO pensions and deferred compensation (inside debt) on investment-cash flow sensitivity for a sample of U.S. manufacturing firms from 2006 to 2012. We find that the firms with higher relative CEO leverage ratios (CEO's debt/equity ratio scaled by the firm's debt/equity ratio) generate higher investment-cash flow sensitivity. Moreover, one standard deviation increase in the logarithm of the relative CEO leverage ratio enlarges investmentcash flow sensitivity by 50%. This positive relationship still holds even after we take endogeneity and financial constraints into account.The second essay explores the net effect of a politically connected board on a firm. Using a quasinatural experiment in China -a regulatory change to forbid bureaucrats from sitting on the board of public firms -we address the causality by testing the market reaction. Those firms with politically connected directors who are targeted by the regulatory change show a significantly positive abnormal stock return on average. The result is robust for various model settings and for a matched sample using the propensity score methodology. Additionally, the announcement effect when a politically connected director resigns is significantly positive, and significantly higher than the effect when a non-connected director resigns. Overall, our results suggest that the agency cost effect of a politically connected director dominates the value effect.The third essay examines the effect of investor divergence of opinions on the long-run performance of private placements. We propose and construct a direct measure of investor divergence of opinion, based on auction bids data of the private placements in China. We find that firms with higher bids dispersion generate lower long-term stock returns after the issuance of private placements. This effect is economically significant and robust when controlling for market discount and for dispersion in analyst forecasts. Moreover, this negative relation is stronger for stocks with more stringent shortsale constraints. Our findings provide strong evidence in support of the Miller's (1977) divergence of opinion hypothesis.iii Declaration by AuthorThis thesis is composed of my original work, and contains no material previously published or written by another person except where due reference has been made in the text. I have clearly stated the contribution by others to jointly-authored works that I have included in my thesis.

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Short-selling, margin-trading, and price efficiency: Evidence from the Chinese market

Cited by 244 publications

References 33 publications

How Did Short Sale Ban Affect German Capital Market Risk?

How Did Short Sale Ban Affect German Capital Market Risk?

Short Sales and Price Discovery in the Hong Kong Stock Market

Three Essays on Empirical Corporate Finance

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