Short Sales and the Weekend Effect - Evidence from a Natural Experiment

35 Pages Posted: 9 Oct 2006 Last revised: 11 Jul 2012

See all articles by Pengjie Gao

Pengjie Gao

University of Notre Dame - Mendoza College of Business

Jia Hao

Babson College

Ivalina Kalcheva

University of California, Riverside

Tongshu Ma

Binghamton University

Date Written: July 10, 2012

Abstract

Price pressure induced by the short-seller's systematic unwinding and rewinding short positions around the weekend allegedly contributes to the weekend effect. On the Hong Kong Stock Exchange, short-selling was prohibited before 1994 and was allowed only for some stocks after 1994. Exploiting this natural experiment, we find a strong weekend effect during the pre-1994 period and during the post-1994 period for both stocks that are allowed to be sold short and those that are not. Moreover, the difference in the weekend effects between the two groups is economically and statistically indistinguishable. These results are inconsistent with the above-mentioned hypothesis.

Keywords: Short sale; Weekend effect; Hong Kong Stock Exchange

JEL Classification: G14, G15

Suggested Citation

Gao, Pengjie and Hao, Jia and Kalcheva, Ivalina and Ma, Tongshu, Short Sales and the Weekend Effect - Evidence from a Natural Experiment (July 10, 2012). Journal of Financial Markets, Forthcoming. Available at SSRN: https://ssrn.com/abstract=934992 or http://dx.doi.org/10.2139/ssrn.934992

Pengjie Gao

University of Notre Dame - Mendoza College of Business ( email )

246 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
(574) 631-8048 (Phone)

Jia Hao

Babson College ( email )

Babson Park, MA 02457-0310
United States

Ivalina Kalcheva (Contact Author)

University of California, Riverside ( email )

900 University Avenue
Riverside, CA 92521
United States

Tongshu Ma

Binghamton University ( email )

PO Box 6001
Binghamton, NY 13902-6000
United States

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