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A unique “T+1 trading rule” in China: Theory and evidence

  • Guo, Ming
  • Li, Zhan
  • Tu, Zhiyong

Unique to the world, China adopts a “T+1 trading rule”, which prevents investors from selling stocks bought on the same day. We develop a dynamic price manipulation model to study the effects of the “T+1 trading rule”. Compared to the “T+0 trading rule”, which allows investors to buy and sell the same stocks during the same day, we show that the “T+1 trading rule” reduces the total trading volume and price volatility, and improves the trend chasers’ welfare when trend-chasing is strong. An empirical test using data on China’s B-share stock market supports the model’s theoretical predictions.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 36 (2012)
Issue (Month): 2 ()
Pages: 575-583

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Handle: RePEc:eee:jbfina:v:36:y:2012:i:2:p:575-583
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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