Short Sale, Margin Purchase, and Stock Price Crash Risk

52 Pages Posted: 2 Feb 2016

See all articles by Yan Luo

Yan Luo

Fudan University

Jinjuan Ren

University of Macau

Date Written: February 1, 2016

Abstract

We investigate the impact of short-sale and margin-purchase on stock price crash risk in the Chinese markets. China lifted bans on short-sale and margin-purchase for stocks on an expanding designated list since March 2010. Results of difference in different tests reveal that the removal of bans on short-sale and margin-purchase is followed by a reduction in stock price crash risk over the subsequent six months. Utilizing firm-level daily short-sale and margin-purchase turnover data, we find that short sales reduce future stock price crash risk whereas margin purchases add to the risk.

Keywords: crash risk, short sale, margin purchase, Chinese market

JEL Classification: G12, G15

Suggested Citation

Luo, Yan and Ren, Jinjuan, Short Sale, Margin Purchase, and Stock Price Crash Risk (February 1, 2016). Asian Finance Association (AsianFA) 2016 Conference, Available at SSRN: https://ssrn.com/abstract=2725776 or http://dx.doi.org/10.2139/ssrn.2725776

Yan Luo

Fudan University ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

Jinjuan Ren (Contact Author)

University of Macau ( email )

Room 4079, E22, Faculty of Business Administration
University of Macau
Taipa, Taipa Nil
Macau
(853) 8822-4185 (Phone)

HOME PAGE: http://www.umac.mo/fba/staff/susanren.html

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
419
Abstract Views
2,096
rank
87,438
PlumX Metrics