The Short-Selling Hypothesis of Weekend Effect and T + 1 Trading Mechanism

Xiao Li and Bin Liu ()
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Xiao Li: Nankai University
Bin Liu: University of Wollongong

Asia-Pacific Financial Markets, 2021, vol. 28, issue 3, No 6, 449-467

Abstract: Abstract Utilizing a difference-in-difference regression model, we conduct cross-sectional and time-series analysis to explore effect of short sales on the weekend effect in the Chinese stock market, which uses a T + 1 trading mechanism. Our empirical results show that (1) significant negative returns associated with the weekend effect in the Chinese stock market before short selling was allowed, but the effect becomes almost insignificant when the short selling ban was lifted; (2) a significant increase in the returns associated with the weekend effect of shortable stocks from the period before to the period after they became eligible for short-selling; and (3) the change in the weekend effect is greater for more volatile stocks than for less volatile stocks. Our findings support the short-selling hypothesis of the weekend effect.

Keywords: Short sales; Weekend effect; Chinese stock market; T + 1 trading mechanism (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10690-021-09329-5

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