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
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
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