全部 标题 作者
关键词 摘要


The Influence of Margin Trading and Short Selling on the Price Efficiency of China’s Stock Market—Based on Portfolio Perspective

DOI: 10.4236/ajibm.2019.91004, PP. 49-62

Keywords: Margin Trading and Short Selling, Short Selling Restriction, Price Efficiency, Hedge Portfolio

Full-Text   Cite this paper   Add to My Lib

Abstract:

In this paper, we use the natural experiment, the “false vaccine event” happening in Changsheng Life Biotechnology Co., Ltd. in the biological vaccine industry, to study whether the margin trading and short selling restriction will have an impact on the stock pricing. We built four different hedge portfolios based on the nature of whether the 22 stocks in the biological vaccine industry could be shorted, and the simulation of portfolio returns was shown three months after the “false vaccine event”. The cumulative return of the portfolio reached a level of 10% - 20%. Furthermore, based on the adequacy of stock price information content and the timeliness of stock price response to information, this paper constructs an index to measure the pricing efficiency of individual stocks. Through regression analysis, we find that among 22 stocks in the biological vaccine industry, the pricing efficiency of stocks which are allowed to carry out margin trading and short selling business is significantly higher than that of which are not allowed to carry out margin trading and short selling business. Based on the difference of return characteristics and pricing efficiency index of hedge portfolio, this paper shows that margin trading and short selling system can help to correct the mispricing of individual stocks and improve the pricing efficiency of the market.

References

[1]  Miller, E.M. (1997) Risk, Uncertainty, and Divergence of Opinion. Journal of Finance, 32, 1151-1168.
https://doi.org/10.1111/j.1540-6261.1977.tb03317.x
[2]  Duffie, D., Garleanu, N. and Pedersen, L.H. (2002) Securities Lending, Shorting, and Pricing. Journal of Financial Economics, 66, 307-339.
https://doi.org/10.1016/S0304-405X(02)00226-X
[3]  Aitken, M.J., Frino, A., Mccorry, M.S. and Swan, P.L. (1998) Short Sales Are Almost Instantaneously Bad News: Evidence from the Australian Stock Exchange. Journal of Finance, 53, 2205-2223.
https://doi.org/10.1111/0022-1082.00088
[4]  Danielsen, B.R. and Sorescu, S.M. (2001) Why Do Option Introductions Depress Stock Prices? A Study of Diminishing Short Sale Constraints. Journal of Financial and Quantitative Analysis, 36, 451-484.
https://doi.org/10.2307/2676220
[5]  Allen, F. and Gale, D. (1991) Arbitrage, Short Sales, and Financial Innovation. Econometrics, 59, 1041-1068.
https://doi.org/10.2307/2938173
[6]  Huang, F.M. (2018) A Study on the Stock Price Effect of the Adjustment of the Stocks in Margin Trade and Short Selling System—A Shares in Shenzhen Stock Market as an Example. Contemporary Finance and Economics, No. 4, 45-53.
[7]  Brunnermeier, M.K. and Pedersen, L.H. (2005) Predatory Trading. Journal of Finance, 60, 1825-1863.
https://doi.org/10.1111/j.1540-6261.2005.00781.x
[8]  Liu, S.C., Cheng, B.H., Yang, Z. and Liu, J.Y. (2018) Research on the Influence of Margin Trade and Short Selling on the Volatility of Stock Price. Journal of Beijing Jiaotong University (Social Sciences Edition), 17, 61-70.
[9]  Li, K., Xu, L.B. and Zhu, W.H. (2014) Short Selling Restriction and Stock Mispricing: Evidence of Margin Trade and Short Selling. Economic Studies, No. 10, 165-178.
[10]  Li, Z.S., Chen, C. and Lin, B.X. (2015) Does Short Selling Improve Pricing Efficiency in China’s Stock Market?-Evidence Based on Natural Experiments. Economic Studies, 50, 165-177.
[11]  Saffi, P.A. and Sigurdsson, K. (2011) Price Efficiency and Short-Selling. Review of Financial Studies, 24, 821-852.
https://doi.org/10.1093/rfs/hhq124
[12]  Boehmer, E. and Wu, J. (2013) Short Selling and the Price Discovery Process. Review of Financial Studies, 26, 287-322.
https://doi.org/10.1093/rfs/hhs097
[13]  Fama, E.F. and French, K.R. (1993) Common Risk Factors in the Returns of Stocks and Bonds. Journal of Financial Economics, 33, 3-56.
https://doi.org/10.1016/0304-405X(93)90023-5
[14]  Sadka, R. and Scherbina, A. (2007) Analyst Disagreement, Mispricing and Liquidity, Journal of Finance, 62, 2367-2403.
https://doi.org/10.1111/j.1540-6261.2007.01278.x
[15]  Chordia, T., Roll, R. and Subrahmanyam, A. (2008) Liquidity and Market Efficiency. Journal of Financial Economics, 87, 249-268.
https://doi.org/10.1016/j.jfineco.2007.03.005
[16]  Li, Z.S., Du, S. and Lin, B.X. (2015) Short Selling and Stock Price Stability: a Natural Experiment from China’s Margin Trade and Short Selling Market. Financial Studies, No. 6, 1873-1888.
[17]  Fang, L.B. and Xiao, B.Q. (2015) The Influence of Margin Trade and Short Selling System Imbalance on the Pricing Efficiency of Stocks. Contemporary Economic Science, 37, 48-56, 125-126.

Full-Text

comments powered by Disqus