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The Determinnts of Short Selling in the Hong Kong Equities Market

  • Michael McKenzie
  • Olan T. Henry

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/downloads/wpapers-07/1001.pdf
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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
Contact details of provider: Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia
Phone: +61 3 8344 5355
Fax: +61 3 8344 6899
Web page: http://www.economics.unimelb.edu.au
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  1. 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.
  2. Raab, Martin & Schwager, Robert, 1993. " Spanning with Short-Selling Restrictions," Journal of Finance, American Finance Association, vol. 48(2), pages 791-93, June.
  3. 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.
  4. 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.
  5. 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.
  6. Christensen, B. J. & Prabhala, N. R., 1998. "The relation between implied and realized volatility," Journal of Financial Economics, Elsevier, vol. 50(2), pages 125-150, November.
  7. Arturo Bris & William N. Goetzmann & Ning Zhu, 2004. "Efficiency and the Bear: Short Sales and Markets around the World," Yale School of Management Working Papers ysm15, Yale School of Management.
  8. 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.
  9. 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.
  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.
  11. Goodhart, Charles & Dai, Lu, 2003. "Intervention to Save Hong Kong: The Authorities' Counter-Speculation in Financial Markets," OUP Catalogue, Oxford University Press, number 9780199261109, March.
  12. Stephen E. Christophe & Michael G. Ferri & James J. Angel, 2004. "Short-Selling Prior to Earnings Announcements," Journal of Finance, American Finance Association, vol. 59(4), pages 1845-1876, 08.
  13. Levy, Moshe & Ritov, Yaacov, 2001. "Portfolio Optimization with Many Assets: The Importance of Short-Selling," University of California at Los Angeles, Anderson Graduate School of Management qt41x4t67m, Anderson Graduate School of Management, UCLA.
  14. D'Avolio, Gene, 2002. "The market for borrowing stock," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 271-306.
  15. 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.
  16. 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.
  17. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
  18. �lan T. Henry & Michael McKenzie, 2006. "The Impact of Short Selling on the Price-Volume Relationship: Evidence from Hong Kong," The Journal of Business, University of Chicago Press, vol. 79(2), pages 671-692, March.
  19. 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.
  20. 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.
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