The Indirect Effects of Trading Restrictions: Evidence from a Quasi-Natural Experiment

50 Pages Posted: 4 Mar 2019

See all articles by Shujing Wang

Shujing Wang

Tongji University

Hongjun Yan

DePaul University

Ninghua Zhong

Tong Ji University - School of Economics and Management

Yizhou Tang

Tongji University

Date Written: February 12, 2019

Abstract

Stock market trading restrictions directly affect stock prices and liquidity via constraints on investors’ transactions. They also have indirect effects by altering the information environment. We isolate these indirect effects by analyzing the effect of stock market restrictions on the corporate bond market. Using the staggered relaxation of the restrictions on margin trading and short selling in the Chinese stock market as a quasi-natural experiment, we find that the relaxation of these restrictions on a firm’s stock reduces the credit spread of its corporate bond. This effect is more pronounced for firms with more opaque information or lower credit ratings.

Keywords: Trading Restrictions, Margin Trading, Short Selling, Corporate Bond Spread, Information Asymmetry, Quasi-Natural Experiment, Chinese Financial Markets

JEL Classification: G12, G15, G18

Suggested Citation

Wang, Shujing and Yan, Hongjun and Zhong, Ninghua and Tang, Yizhou, The Indirect Effects of Trading Restrictions: Evidence from a Quasi-Natural Experiment (February 12, 2019). Available at SSRN: https://ssrn.com/abstract=3333403 or http://dx.doi.org/10.2139/ssrn.3333403

Shujing Wang

Tongji University ( email )

Shanghai
China

Hongjun Yan (Contact Author)

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

HOME PAGE: http://sites.google.com/view/hongjunyan

Ninghua Zhong

Tong Ji University - School of Economics and Management ( email )

Tongji A Building,
No.1 Zhangwu Road
Shanghai, Shanghai 200092
China

HOME PAGE: http://sem.tongji.edu.cn/semen_data/attachments/month_1507/2015720112620.pdf

Yizhou Tang

Tongji University ( email )

Shanghai
China

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