Margin trading, short selling, and information asymmetry

Minggang Xu, Xueyong Zhang and Yeqing Zhang

Journal of Financial Markets, 2024, vol. 70, issue C

Abstract: We investigate the impact of margin trading and short selling (MTSS) on information asymmetry using data from a unique Chinese pilot program that permits MTSS for a specific list of stocks. We establish a theoretical framework indicating that MTSS enhances the pricing system’s informativeness, leading to reduced information asymmetry. Motivated by this theoretical framework, we design a quasi-experiment to analyze data from 2013 to 2016. We find that indeed MTSS weakens information asymmetry. Furthermore, the reduction of information asymmetry can be attributed to both margin trading and short selling.

Keywords: Margin trading; Short selling; Information asymmetry; Pricing system (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:70:y:2024:i:c:s1386418124000442

DOI: 10.1016/j.finmar.2024.100926

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