The Influence Of Short-selling And Margin-buying On Chinese Stock Market

As an important source of market inefficiency,investment restrictions have been widely discussed at home and abroad.On March 31th 2010,the CSRC permits short selling and margin buying,which essentially reduces the investment restrictions and aims at improving the market efficiency and making the resource allocation more reasonable and scientific.However,as a kind of leverage trading,short selling and margin buying have been challenged since its introduction;especially when the market is extremely volatile or sharply drops,the short sellers are always blamed and criticized by the public media and authorities.Different from these argument,researchers believe that short selling and margin buying are positive for market and should be strengthened and deepenedShort selling and margin buying are also controversial in Chinese market,for example,the CSRC asks the major security companies to stop short selling during the market crash in 2015.What,s the real effects of short selling and margin buying on Chinese stock market?Do they improve or distort the market pricing?Do they stabilize the market or destabilize the market?I discuss these topics more rigorously and completely and try to answer these questionsChapter 3 introduces the history of short selling and margin buying in Chinese market and discusses the statistical characteristics during each industry.I find that short sellers and margin buyers perform differently.Margin buyers prefers to trading individual stocks while short sellers prefer to shorting ETF,and the holding period of short sellers is much shorter than that of margin buyersChaper 4 theoretically studies the effects of short-selling constraints and margin-buying constraints on stock price.I show that short-selling constraints lead to overvaluation while margin-buying constraitns lead to undervaluationChapter 5 examines the influence of short selling and margin buying on stock returns by event study,finding that the BHAR of treatment group is significantly lower than that of control group after event date,which means that the pure effects of short selling and margin buying is negative.Furthermore,I show that the blue-chip stocks and lower valued stocks do not significantly decrease after the removal of short selling and margin buying,while the small stocks and growth stocks,typically viewed as highly overpriced stocks,drops significantly after the event date,which indicates that short selling and margin buying pulls the overvalued stocks back to their fundamental and thus improves the pricing efficiencyChapter 6 studies the predictive power of short selling and margin buying on stock returns.I find that short sellers and margin buyers are more informative than common traders,as short selling and margin buying volume are significantly predictive for future stock returns.If short sellers and margin buyers are more pessimistic,indicated by the increase of short selling volume relative to short selling and margin buying volume,such stocks decrease significantly in the future Furthermore,I also find that such predictive power is independent of size effects,B/M effects and momentum effects.Different from the existing research,I show that we cannot predict future returns only using short selling volumeChapter 7 studies the influence of short selling and margin buying on market quality,including volatility,liquidity and pricing error.However,different from the existing researches,I do not detect significant pure effects on these aspects when the sample covers all designated stocks.I think such insignificant results at least show that it is not reasonable to blame the short sellers and margin buyers for destabilizing the market,which can also partly dispel the major concerns of criticsChapter 8 studies what influence short-selling volume and margin-buying volume.The results show that factors including alpha,market beta and IVOL significantly influence short-selling volume and margin-buying volume;both turnover and volatility also significantly influence short-selling volume and margin buying volume.Different from the existing research,I show that alpha is more influenced than past return.