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The Determinnts of Short Selling in the Hong Kong Equities Market

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Author Info
Michael McKenzie
Olan T. Henry

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Abstract

This paper investigates the determinants and information content of short selling in the Hong Kong equity market. Using daily data on the volume of short selling in individual stocks, we find that dividend payments, company fundamentals, risk, option trading, the interest rate spread and past returns and short selling are all significant determinants of short selling. Further, higher short selling in the current period is associated with higher returns in the next period. Once short sellers reduce their activity in the market however, negative returns are expected to follow.

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File URL: http://www.economics.unimelb.edu.au/SITE/research/workingpapers/wp07/1001.pdf
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Publisher Info
Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1001.

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Length: 42 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mlb:wpaper:1001

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Related research
Keywords: Short Selling; Equity Market Efficiency;

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Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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  1. Michael J. Aitken & Alex Frino & Michael S. McCorry & Peter L. Swan, 1998. "Short Sales Are Almost Instantaneously Bad News: Evidence from the Australian Stock Exchange," Journal of Finance, American Finance Association, vol. 53(6), pages 2205-2223, December. [Downloadable!] (restricted)
  2. Raab, Martin & Schwager, Robert, 1993. " Spanning with Short-Selling Restrictions," Journal of Finance, American Finance Association, vol. 48(2), pages 791-93, June. [Downloadable!] (restricted)
  3. Olan T. Henry & Michael McKenzie, 2004. "The Impact of Short Selling on the Price-Volume Relationship: Evidence from Hong Kong," Working Papers 032004, Hong Kong Institute for Monetary Research. [Downloadable!]
    Other versions:
  4. Almazan, Andres & Brown, Keith C. & Carlson, Murray & Chapman, David A., 2004. "Why constrain your mutual fund manager?," Journal of Financial Economics, Elsevier, vol. 73(2), pages 289-321, August. [Downloadable!] (restricted)
  5. Christensen, B. J. & Prabhala, N. R., 1998. "The relation between implied and realized volatility1," Journal of Financial Economics, Elsevier, vol. 50(2), pages 125-150, November. [Downloadable!] (restricted)
  6. Ho, Kim Wai, 1996. "Short-sales restrictions and volatility The case of the Stock Exchange of Singapore," Pacific-Basin Finance Journal, Elsevier, vol. 4(4), pages 377-391, December. [Downloadable!] (restricted)
  7. Ólan T. Henry & Michael McKenzie, 2006. "The Impact of Short Selling on the Price-Volume Relationship: Evidence from Hong Kong," Journal of Business, University of Chicago Press, vol. 79(2), pages 671-692, March. [Downloadable!]
  8. Senchack, A. J. & Starks, Laura T., 1993. "Short-Sale Restrictions and Market Reaction to Short-Interest Announcements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(02), pages 177-194, June. [Downloadable!]
  9. McDonald, John G & Baron, Donald C, 1973. "Risk and Return on Short Positions in Common Stocks," Journal of Finance, American Finance Association, vol. 28(1), pages 97-107, March. [Downloadable!] (restricted)
  10. Owen A. Lamont & Jeremy C. Stein, 2004. "Aggregate Short Interest and Market Valuations," American Economic Review, American Economic Association, vol. 94(2), pages 29-32, May. [Downloadable!]
  11. William N. Goetzmann & Ning Zhu & Arturo Bris, 2003. "Efficiency and the Bear: Short Sales and Markets around the World," NBER Working Papers 9466, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Cohen, Lauren & Diether, Karl B. & Malloy, Christopher J., 2005. "Supply and Demand Shifts in the Shorting Market," Working Paper Series 2005-8, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  13. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December. [Downloadable!] (restricted)
  14. Kwan, Clarence C. Y., 1995. "Optimal portfolio selection under institutional procedures for short selling," Journal of Banking & Finance, Elsevier, vol. 19(5), pages 871-889, August. [Downloadable!] (restricted)
  15. Owen A. Lamont & Jeremy C. Stein, 2004. "Aggregate Short Interest and Market Valuations," NBER Working Papers 10218, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. D'Avolio, Gene, 2002. "The market for borrowing stock," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 271-306. [Downloadable!] (restricted)
  17. Diamond, Douglas W. & Verrecchia, Robert E., 1987. "Constraints on short-selling and asset price adjustment to private information," Journal of Financial Economics, Elsevier, vol. 18(2), pages 277-311, June. [Downloadable!] (restricted)
  18. Dechow, Patricia M. & Hutton, Amy P. & Meulbroek, Lisa & Sloan, Richard G., 2001. "Short-sellers, fundamental analysis, and stock returns," Journal of Financial Economics, Elsevier, vol. 61(1), pages 77-106, July. [Downloadable!] (restricted)
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