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Against the tide: the commencement of short selling and margin trading in mainland China

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Listed:
  • Saqib Sharif
  • Hamish D. Anderson
  • Ben R. Marshall
  • Henk Berkman

Abstract

type="main" xml:id="acfi12032-abs-0001"> China's recent removal of short-selling and margin trading bans on selected stocks enables testing of the relative effect of margin trading and short selling. We find the prices of the shortable stocks decrease, on average, relative to peer A-shares and cross-listed H-shares, suggesting that short selling dominates margin trading effects. Contrary to the regulators' intention and recent developed market empirical evidence, liquidity declines and bid-ask spreads increase in these shortable stocks. Consistent with Ausubel (1990), these results imply that uninformed investors avoid the shortable stocks to reduce the risk of trading with informed investors.

Suggested Citation

  • Saqib Sharif & Hamish D. Anderson & Ben R. Marshall & Henk Berkman, 2014. "Against the tide: the commencement of short selling and margin trading in mainland China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(4), pages 1319-1355, December.
  • Handle: RePEc:bla:acctfi:v:54:y:2014:i:4:p:1319-1355
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    File URL: http://hdl.handle.net/10.1111/acfi.2014.54.issue-4
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    Cited by:

    1. Gwilym, Owain Ap & Wang, Qvigwei & Hasan, Iftekhar & Xie, Ru, 2013. "In search of concepts : The effects of speculative demand on returns and volume," Research Discussion Papers 10/2013, Bank of Finland.
    2. repec:eee:riibaf:v:43:y:2018:i:c:p:68-78 is not listed on IDEAS
    3. Linnenluecke, Martina K. & Chen, Xiaoyan & Ling, Xin & Smith, Tom & Zhu, Yushu, 2016. "Emerging trends in Asia-Pacific finance research: A review of recent influential publications and a research agenda," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 66-76.
    4. repec:eee:finana:v:56:y:2018:i:c:p:32-51 is not listed on IDEAS
    5. repec:bla:acctfi:v:57:y:2017:i:3:p:727-757 is not listed on IDEAS
    6. Rui Ma & Hamish D. Anderson & Ben R. Marshall, 2016. "International stock market liquidity: a review," Managerial Finance, Emerald Group Publishing, vol. 42(2), pages 118-135, February.
    7. Chen, Jun & Kadapakkam, Palani-Rajan & Yang, Ting, 2016. "Short selling, margin trading, and the incorporation of new information into prices," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 1-17.

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