Short Sales and the Weekend Effect - Evidence from a Natural Experiment
35 Pages Posted: 9 Oct 2006 Last revised: 11 Jul 2012
Date Written: July 10, 2012
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: Suggested Citation