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

Yongjia Lin, Yizhi Wang and Fu, Xiaoqing (Maggie)

Finance Research Letters, 2022, vol. 46, issue PA

Abstract: In this paper, we investigate the effects of margin purchases and short sales on the return volatility in the Chinese stock market during the COVID-19 outbreak. We present two main findings. First, we show that stocks with higher level of margin-trading activity exhibit higher return volatility. The COVID-19 outbreak amplifies the destabilizing effects of margin-trading activity. Second, no evidence shows that short selling destabilizes the stock market in general. However, we observe that intensified short-selling activity is associated with lower return volatility when infection risk is high during the COVID-19 crisis.

Keywords: COVID-19 outbreak; Volatility innovation; Margin purchases; Short sales; Chinese stock market (search for similar items in EconPapers)
JEL-codes: G01 G10 G14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pa:s1544612321003561

DOI: 10.1016/j.frl.2021.102351

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