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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
  • Michael McKenzie

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 The University of Melbourne in its series Department of Economics - Working Papers Series with number 869.

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Length: 48 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:mlb:wpaper:869

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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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