A unique “T+1 trading rule” in China: Theory and evidence

Ming Guo, Zhan Li and Zhiyong Tu

Journal of Banking & Finance, 2012, vol. 36, issue 2, 575-583

Abstract: Unique to the world, China adopts a “T+1 trading rule”, which prevents investors from selling stocks bought on the same day. We develop a dynamic price manipulation model to study the effects of the “T+1 trading rule”. Compared to the “T+0 trading rule”, which allows investors to buy and sell the same stocks during the same day, we show that the “T+1 trading rule” reduces the total trading volume and price volatility, and improves the trend chasers’ welfare when trend-chasing is strong. An empirical test using data on China’s B-share stock market supports the model’s theoretical predictions.

Keywords: T+1 trading rule; Trading volume; Volatility; Trend-chasing (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:2:p:575-583

DOI: 10.1016/j.jbankfin.2011.09.002

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