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

Eric C. Chang, Yan Luo and Jinjuan Ren ()

Journal of Banking & Finance, 2014, vol. 48, issue C, 411-424

Abstract: China launched a pilot scheme in March 2010 to lift the ban on short-selling and margin-trading for stocks on a designated list. We find that stocks experience negative returns when added to the list. After the ban is lifted, price efficiency increases while stock return volatility decreases. Panel data regressions reveal that intensified short-selling activities are associated with improved price efficiency. Short-sellers trade to eliminate overpricing by selling stocks with higher contemporaneous returns following a downward trend, and their trades predict future returns. In contrast, we find intensified margin-trading activities for stocks with lower contemporaneous returns, and these trades have no return predictive power.

Keywords: Short selling; Margin trading; Efficiency; Stabilization (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 G18 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (108)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:48:y:2014:i:c:p:411-424

DOI: 10.1016/j.jbankfin.2013.10.002

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