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The Short-Selling Hypothesis of Weekend Effect and T + 1 Trading Mechanism

Author

Listed:
  • Xiao Li

    (Nankai University)

  • Bin Liu

    (University of Wollongong)

Abstract

Utilizing a difference-in-difference regression model, we conduct cross-sectional and time-series analysis to explore effect of short sales on the weekend effect in the Chinese stock market, which uses a T + 1 trading mechanism. Our empirical results show that (1) significant negative returns associated with the weekend effect in the Chinese stock market before short selling was allowed, but the effect becomes almost insignificant when the short selling ban was lifted; (2) a significant increase in the returns associated with the weekend effect of shortable stocks from the period before to the period after they became eligible for short-selling; and (3) the change in the weekend effect is greater for more volatile stocks than for less volatile stocks. Our findings support the short-selling hypothesis of the weekend effect.

Suggested Citation

  • Xiao Li & Bin Liu, 2021. "The Short-Selling Hypothesis of Weekend Effect and T + 1 Trading Mechanism," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 28(3), pages 449-467, September.
    • Handle: RePEc:kap:apfinm:v:28:y:2021:i:3:d:10.1007_s10690-021-09329-5
    DOI: 10.1007/s10690-021-09329-5
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    References listed on IDEAS

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    More about this item

    Keywords

    Short sales; Weekend effect; Chinese stock market; T + 1 trading mechanism;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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