 Margin-buying, short-selling, and stock valuation: Why is the effect reversed over time in China?Xiaoyuan Wan Journal of Empirical Finance, 2024, vol. 76, issue C Abstract: China launched a pilot program in March 2010 to lift the ban on margin-buying and short-selling. Based on the first two batches of designated stocks, the literature documents that lifting the ban has a negative effect on stock valuation. However, we show that the effect has reversed to positive for the next six batches of designated stocks. We explore several potential explanations. Our analyses show that as short-selling volume grew at a much slower pace or even declined relative to margin-buying volume over our sample period, the positive effect of margin-buying on stock valuation has dominated the negative effect of short-selling. Both time-series and cross-sectional tests show that the imbalance between margin-buying and short-selling is the main driver of the reversal. We further show that the effect of lifting margin-buying and short-selling ban on stock price efficiency and discovery also reversed over time. Keywords: Margin-buying; Short-selling; Stock valuation; Price efficiency; Price discovery (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:76:y:2024:i:c:s0927539824000112 DOI: 10.1016/j.jempfin.2024.101476 Access Statistics for this article Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff More articles in Journal of Empirical Finance from Elsevier |
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