Short Sales, Margin Trades and Bid-Ask Spreads

22 Pages Posted: 2 May 2015

See all articles by Yan Zhao

Yan Zhao

City College - City University of New York

Lee-Young Cheng

National Chung Cheng University

Chong-Chuo Chang

Asia University

Cih-Ying Ni

Asia University

Date Written: 2013

Abstract

This study examines intraday patterns of short sales, margin purchases, adverse selection, and bid-ask spreads in the order-drivenmarket of the Taiwan Stock Exchange (TWSE). We find that both short sales and margin purchases exhibit a U-shaped intraday pattern in the TWSE. We further show that short sales and margin purchases have a significantly positive relationship with adverse selection and bid-ask spreads. We provide evidence that the U-shaped pattern of bid-ask spreads can be explained by short selling and margin trading activities.

Suggested Citation

Zhao, Yan and Cheng, Lee-Young and Chang, Chong-Chuo and Ni, Cih-Ying, Short Sales, Margin Trades and Bid-Ask Spreads (2013). Pacific-Basin Finance Journal, Vol. 24, 2013. Available at SSRN: https://ssrn.com/abstract=2601179

Yan Zhao

City College - City University of New York ( email )

Convert Avenue at 138th Street
New York, NY 10031
United States

Lee-Young Cheng (Contact Author)

National Chung Cheng University ( email )

Min-Shiung, Chia-Yi, 621
Taiwan

Chong-Chuo Chang

Asia University ( email )

Tokyo 180-8629
Japan

Cih-Ying Ni

Asia University

Tokyo 180-8629
Japan

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