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The Impact of Short Selling on the Price-Volume Relationship: Evidence from Hong Kong

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  • Olan T. Henry

    (University of Melbourne)

  • Michael McKenzie

    (RMIT University)

Abstract

This paper considers the relationship between traded volume and volatility. We employ short sales data to discriminate between transactions that close existing long positions and transactions that establish new short positions. We test for, and where appropriate, incorporate non-linearity and asymmetry into the modelling process. The evidence supports a non-linear, bi-directional relationship between volume and volatility. The results suggest (i) that the market displays greater volatility following a period of short selling and (ii) that asymmetric responses to positive and negative innovations to returns appear to be exacerbated by short selling.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 032004.

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Length: 38 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:hkm:wpaper:032004

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References

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Cited by:
  1. Frino, Alex & Lecce, Steven & Lepone, Andrew, 2011. "Short-sales constraints and market quality: Evidence from the 2008 short-sales bans," International Review of Financial Analysis, Elsevier, vol. 20(4), pages 225-236, August.
  2. Michael McKenzie & Olan T. Henry, 2007. "The Determinnts of Short Selling in the Hong Kong Equities Market," Department of Economics - Working Papers Series 1001, The University of Melbourne.

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