The Announcement and Implementation Reaction to China’s Margin Trading and Short Selling Pilot Programme

Sharif, Saqib; Anderson, Hamish D.; Marshall, Ben R.

doi:10.2139/ssrn.2090274

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The Announcement and Implementation Reaction to China’s Margin Trading and Short Selling Pilot Programme

Sharif, S., Anderson, H.D. & Marshall, B.R. (2014). The Announcement and Implementation Reaction to China’s Margin Trading and Short Selling Pilot Programme. International Journal of Managerial Finance, Volume 10, Issue 3, pages 368-384.

39 Pages Posted: 25 Jun 2012 Last revised: 28 Jun 2019

See all articles by Saqib Sharif

Saqib Sharif

Institute of Business Administration, Karachi

Hamish D. Anderson

Massey University - School of Economics and Finance

Ben R. Marshall

Massey University - School of Economics and Finance

Date Written: August 15, 2012

Abstract

We examine the impact of China’s 2010 margin trading and short selling pilot programme on stock returns and trading volume. The market reacts negatively to both the programme announcement and implementation, with significantly lower returns and trading volumes in the pilot stocks. The negative stock price reaction is anticipated by Miller’s (1977) overvaluation hypothesis in the presence of short-sales restrictions. While lower volume is contrary to the developed market empirical evidence, it is consistent with Ausubel’s (1990) theory, which implies that uninformed investors reduce their investment in pilot stocks to avoid the risk of trading against informed investors.

Keywords: Short selling, Margin trading, China, Information asymmetry, Overvaluation, Volume

JEL Classification: G12, G14, G18

Suggested Citation: Suggested Citation

Sharif, Saqib and Anderson, Hamish D. and Marshall, Ben R., The Announcement and Implementation Reaction to China’s Margin Trading and Short Selling Pilot Programme (August 15, 2012). Sharif, S., Anderson, H.D. & Marshall, B.R. (2014). The Announcement and Implementation Reaction to China’s Margin Trading and Short Selling Pilot Programme. International Journal of Managerial Finance, Volume 10, Issue 3, pages 368-384., Available at SSRN: https://ssrn.com/abstract=2090274 or http://dx.doi.org/10.2139/ssrn.2090274