Short-Selling, Uptick Rule, and Market Quality: Evidence from High-Frequency Data on Hong Kong Stock Exchange

43 Pages Posted: 20 Nov 2010 Last revised: 4 Mar 2011

Pengjie Gao

University of Notre Dame - Mendoza College of Business

Jia Hao

CUHK Business School, The Chinese University of Hong Kong; University of Michigan at Ann Arbor - Ross School of Business

Ivalina Kalcheva

University of California, Riverside

Tongshu Ma

Binghamton University

Date Written: March 1, 2011

Abstract

Much empirical research has been conducted concerning the effect of short-selling on market quality and volatility. However, the evidence is inconclusive and still a matter of debate. Using intraday data in a pure order-driven market we show that allowing for short-selling decreases the adverse selection costs for less-visible firms, firms with less analyst coverage, larger adverse-selection cost component of the bid-ask spread, low price per share, and high relative tick size (given the same market capitalization). Allowing for short-selling also decreases (increases) intraday volatility for less- (more-) visible stocks. In addition we document that with the uptick rule in place (not in place) there is not statistically significant difference in liquidity (intraday volatility) between stocks that are allowed for short-selling and those that are not.

Keywords: short-selling, uptick rule, market quality, liquidity, volatility

JEL Classification: G1, G2

Suggested Citation

Gao, Pengjie and Hao, Jia and Kalcheva, Ivalina and Ma, Tongshu, Short-Selling, Uptick Rule, and Market Quality: Evidence from High-Frequency Data on Hong Kong Stock Exchange (March 1, 2011). Available at SSRN: https://ssrn.com/abstract=1710924 or http://dx.doi.org/10.2139/ssrn.1710924

Pengjie Gao

University of Notre Dame - Mendoza College of Business ( email )

246 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
(574) 631-8048 (Phone)

Jia Hao

CUHK Business School, The Chinese University of Hong Kong ( email )

Shatin, N.T.
Hong Kong
852-3943-1914 (Phone)

HOME PAGE: http://www.bschool.cuhk.edu.hk/index.php/faculty-staff/show-alltest?pid=2&sid=1226:HAO-Jia

University of Michigan at Ann Arbor - Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-647-1690 (Phone)

Ivalina Kalcheva (Contact Author)

University of California, Riverside ( email )

900 University Avenue
Riverside, CA 92521
United States

Tongshu Ma

Binghamton University ( email )

PO Box 6001
Binghamton, NY 13902-6000
United States

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