Back
 TEL  Vol.9 No.7 , October 2019
Does Short Selling Increase Speculation? Evidence from the Chinese Stock Market
Abstract: Using difference-in-differences method, this paper examines the effect of the introduction of short selling in the Chinese stock market on the speculative trading of underlying stocks and makes a further exploration of the cause from the perspective of the changes in shareholder structure. It is found that speculative trading of underlying stocks is significantly decreased after short selling is introduced, and the speculation of stocks with low market value and low idiosyncratic volatility is increased more than those with high market value and high idiosyncratic volatility. Leaving the short selling markets of some small and institutional investors, who prefer to speculative trading, are able to partially and well explain these study results.
Cite this paper: Xie, L. , Zhang, X. , Zhang, Y. and Wang, D. (2019) Does Short Selling Increase Speculation? Evidence from the Chinese Stock Market. Theoretical Economics Letters, 9, 3699-2710. doi: 10.4236/tel.2019.97169.
References

[1]   Miller, E.M. (1977) Risk, Uncertainty and Divergence of Opinion. Journal of Finance, 32, 1151-1168.
https://doi.org/10.1111/j.1540-6261.1977.tb03317.x

[2]   Diamond, D.W. and Verrecchia, R.E. (1987) Constraints on Short-Selling and Asset Price Adjustment to Private Information. Journal of Financial Economics, 18, 277-311.
https://doi.org/10.1016/0304-405X(87)90042-0

[3]   Hong, H. and Stein, J.C. (2003) Differences of Opinion, Short-Sales Constraints, and Market Crashes. Review of Financial Studies, 16, 487-525.
https://doi.org/10.1093/rfs/hhg006

[4]   Charoenrook, A.A. and Daouk, H. (2004) The World Price of Short Selling. SSRN Working Paper.

[5]   Beber, A. and Pagano, M. (2013) Short-Selling Bans around the World: Evidence from the 2007-09 Crisis. Journal of Finance, 68, 343-381.
https://doi.org/10.1111/j.1540-6261.2012.01802.x

[6]   Jarrow, R. (1980) Heterogeneous Expectations, Restrictions on Short Sales, and Equilibrium Asset Prices. Journal of Finance, 35, 1105-1113.
https://doi.org/10.1111/j.1540-6261.1980.tb02198.x

[7]   Anufriev, M. and Tuinstra, J. (2013) The Impact of Short-Selling Constraints on Financial Market Stability in a Heterogeneous Agents Model. Journal of Economic Dynamics & Control, 37, 1523-1543.
https://doi.org/10.1016/j.jedc.2013.04.015

[8]   Sebastian, L. and Andrea, R.F. (2013) Not All Financial Speculation Is Treated Equally: Laypeople’s Moral Judgments about Speculative Short Selling. Journal of Economic Phychology, 37, 34-41.
https://doi.org/10.1016/j.joep.2013.05.005

[9]   Zheng, Z. and Li, L. (2006) Turnovers and Stock Returns: Liquidity Premium or Speculative Bubbles? China Economic Quarterly, 5, 871-892.

[10]   Wang, Z. and Wang, B. (2018) Stock Speculation, Information Discovery and Cost of Equity: A Further Discussion on Equity Financing Preference. Economic Review, 210, 103-118.

 
 
Top