Impact of Short Selling on China Stock Prices

Research output: Chapters, Conference Papers, Creative and Literary Works (RGC: 12, 32, 41, 45)12_Chapter in an edited book (Author)Not applicablepeer-review

View graph of relations

Author(s)

Related Research Unit(s)

Detail(s)

Original languageEnglish
Title of host publicationHandbook of short selling
EditorsGreg N. Gregoriou
Place of PublicationWaltham, MA
PublisherAcademic Press
Pages269-278
ISBN (Print)9780123877246, 0123877245
Publication statusPublished - Oct 2011

Abstract

This chapter investigates the impact of short selling on China stock prices. It is generally argued that investors engage in short selling because of their belief that assets are overpriced. Some sell short simply to hedge against the risk of their current asset holdings. In this case, their hedges may be perfect hedges in which assets being short are the same as assets being held. In addition, some hedges may be imperfect hedges in which assets short and assets held are not the same. Before March 31, 2010, short selling was prohibited in the Chinese stock market as their regulators worried that short selling would exacerbate market volatility and cause severe instability to the stock market. On March 30, 2010, the China Securities Regulation Committee (CSRC) formally announced the permit of margin purchase and short selling. The CSRC approved a total of 90 selected stocks on the Shanghai and Shenzhen exchanges for a trial run of the new reform. The reform provided with a new data set for studying the impact of short selling on stock prices. An event study methodology and use of a control group for comparison, found that stocks allowed for short selling tend to have worse performance than those not allowed for short selling. This may support the arguments that short selling provides a tool to informed investors to correct overpricing and that short selling helps mitigate the occurrence of a stock market bubble. © 2012 Elsevier Inc. All rights reserved.

Research Area(s)

  • Abnormal return, China Securities Regulation Committee, Cumulative abnormal return, Event study methodology, Short selling, Stock market bubble

Citation Format(s)

Impact of Short Selling on China Stock Prices. / Zhou, Kaiguo; WONG, Chak Sham.

Handbook of short selling. ed. / Greg N. Gregoriou. Waltham, MA : Academic Press, 2011. p. 269-278 17.

Research output: Chapters, Conference Papers, Creative and Literary Works (RGC: 12, 32, 41, 45)12_Chapter in an edited book (Author)Not applicablepeer-review