| On March 31,2010,China officially launched a pilot project of margin financing and short selling.As a mechanism innovation,the short-selling mechanism has ended the "unilateral" market since the establishment of China's stock market.It is expected that the margin financing and short selling system will possess four basic functions in China's capital market construction: price discovery function,market stability function,liquidity enhancement function,and risk management function.Whether the short-selling mechanism has actually implemented these functions,and do these functions link to each other or can they be transformed into each other? These are worthy of our further exploration.In order to clarify these problems,from the perspective of the main line,this study mainly studies the impact of short selling mechanism on stock market efficiency,and how the management mechanism affects the stock market efficiency.The research on the efficiency of stock market is mainly conducted from two levels,namely,the operational efficiency of stock market and the information efficiency of stock prices.The operational efficiency refers to whether the stock market can complete transactions in the shortest time and at the lowest transaction cost.It reflects the patency of the organization function and service function of the stock market,and the efficiency actually acts on the market liquidity.Information efficiency refers to whether the market price of stocks can react quickly and timely to relevant information.By analyzing these two seemingly endogenous links,it can help us understand how the short selling mechanism can bring into the functions of price discovery,market stabilization,liquidity enhancement and risk management.China's margin financing and short selling system possesses distinctive characteristics of emerging markets,which is,the margin trading balance is much higher than that of short selling,and the proportion of short selling is very small.This has increased the difficulty of the research compared to the natural experiments in western countries which simply relax the short selling control.In addition,the collapse of the stock market triggered by the leveraged financing of the Chinese A-share market in 2015 raised serious doubts and criticism on the research perspectives who speak high of credit transactions.The expansion of margin trading and short selling has almost stagnated.Similar financial innovation derivatives such as stock index futures have also been almost forcibly terminated,and China's credit trading mechanism which has just launched ——especially short-type credit trading——was once facing a dilemma.Although the research center of this research is on the short selling mechanism,due to the particularity of China's capital market policy,short-selling margin trading are implemented just at the same stage,in this way margin trading transactions can be used as reverse trading tools for short-selling transactions.And the study of its mechanism and characteristics of the influence can help build a further understanding of how the short selling mechanism works at the company level and the stock market level.Therefore,this study will mainly focus on short-selling,and partially focus on margin trading.In order to clarify the effect of the short-selling mechanism on the efficiency of resource allocation in the capital market,firstly,by studying the impact of short-selling and margin trading on liquidity and volatility,which are the core indicators of the quality of the stock market,it was finally found that the two financial transactions can generally increasing market liquidity and can also decrease market volatility especially at the period of a stock crash.Short-selling and margin trading are not the culprits that cause abnormal fluctuations in the stock market.This is mainly because the margin trading and short-selling mechanism belongs with exchange transaction market,which bear resemblance to the Over the Counter leveraged financing,therefore they are easy to be confused by the public and to be considered the same type of mechanism.Although these two types of leveraged financing are both financial innovation products based on credit trading mechanisms and they naturally possess the characteristics of magnifying risk of stock market,leveraged financing of exchange transaction market has relative low leverage and low sensitivity to fluctuations,and the requirements for access mechanisms and risk control are much more strict than over-the-counter one.These characteristics make it possible for the exchange transaction market's one to play a more positive role under supervision.The effect of stabilizing the market by promoting transactions and value discovery will be more significant.Although the regulatory authorities suppressed the development of the two financial institutions at the time,they should not be confused with the disorder OTC transaction.The essential reason for the abnormal fluctuation of the stock market in 2015 was the decline of the economic fundamentals,the bars of traditional economic growth points and the high expectations of investors in the economic transition period.A series of measures can be adopted to foster strengths and circumvent weaknesses,such as stock market stabilization fund and balancing two powers,so as to create a more market-oriented stock market environment and guide it to play a moderating effect and value discovery effect.However,short selling and margin trading have been proved to improve the macro efficiency of stock market and that they are not the direct drivers of the stock market crash,but the two have different effects on the efficiency of stock price information,which is also a measure of the efficiency of the stock market.The short selling mechanism seems to have no essential difference from the margin trading mechanism.In fact,does short selling mechanism have the unique mechanism and characteristics relative to the short sale transaction as short selling credit transaction? Is the short selling mechanism a unique transmission mechanism in the further influence of the risk adjustment and resource allocation efficiency of the capital market? It is a natural question.In order to solve this problem,we need to further explore the information mechanism of the short selling system to the stock market and the risk changes caused by the information mechanism.Therefore,it is not enough to pay attention to the operational efficiency of the market only,and we need to pay close attention to the second level mechanism of the stock market efficiency,namely,how short selling plays a role in the efficiency of stock price information;in the same way the focusing on the ex post shocks at the level of market transactions are not enough,but also need to pay attention to the ex ante threat effect based on(negative)information transfer.Based on the principal-agent theory and the information asymmetry theory,this study believes that in addition to improving the macro liquidity and volatility of the stock market,the short-selling mechanism also conduct threats and fear.The possibility of integrating bad news into the stock price weakens the agency problem of the company's managers,which creates a governance effect on the opportunistic motivation of the investment,financing and earnings management of managers.Therefore,this study sets out from the perspective of the information mechanism and the agency problem,linking the short selling mechanism,the behavior of the company's managers and the efficiency of stock price information to conduct the research.Finally,it was found that the short selling mechanism can not only restrict the company's excessive investment behavior and earnings management manipulation,but can also restrict manager's opportunistic behavior in investment and accounting manipulation to promote the efficiency of stock price information.Due to market and policy restrictions,prices can hardly fully reflect negative information directly from short-selling systems because trading power is much too weak,but can be achieved through short-selling's ex-ante threat directly affecting the company's managers,making information more accessible through company channels.The empirical results also show that,in contrast,margin trading transactions do not improve the information efficiency of stock prices,which is not inconsistent with the conclusion that it can increase market liquidity and decrease volatility,but illustrates that the margin trading mechanism is able to improve market activity and adjust supply and demand in the short term,but margin trading investors may lack the motivation to search and analyze negative information as short sellers,furthermore the disparity of short-sale and short-sale transactions,the noise of margin trading transactions due to large buying pressure which cannot be balanced by short selling transactions,make it very difficult to promote the resource allocation efficiency of the stock prices at this stage.In order to prove that the short selling mechanism really works through the information transmission mechanism,and also to prove why short sellers need to be feared,this study also tests whether the short sellers are information traders by examining the impact of short selling rate of the day on the stocks' future expected returns,including short sellers' sources of information.Finally,empirical findings have proved that short selling activities have the ability to predict the future expected return of the stock prices,and the ability of short selling to predict the future price of the stock price is mainly dependent on the occurrence of negative news,indicating that the short sellers do get arbitrage profit through information,especially negative information,and the proof of short sellers' ability to trade on information adds an important transmission path for short selling mechanism to restrain the behavior of managers.And the research also found that part of the information from China's short sellers comes from inside information.The research in this thesis is of important theoretical significance.This research not only examines the impact of the two mechanisms on the macro characteristics of the market,but also is it based on the exploration of the improvement of the management efficiency of the corporates,improving the research system from a micro perspective in which the credit derivatives promote market price efficiency and risk management,and all of this broadens the research depth of this system.Empirical research on China's A-share market also complements the situation of emerging market countries in this field.In addition,there are few literature exploring the reasons and the transmission mechanism of the improvement of stock price efficiency by margin financing and stock lending,or exploring the stock market efficiency improved by the channels of market transactions.The study organically links the short selling system,corporate managers' behavior and stock price efficiency,revealing that the transmission and reasons for the short-selling system improving the resource allocation capabilities of stock market,broadening the research perspective on methods and paradigms to test the value effect of the short-selling mechanism.The research conclusions have not only explored a microconduction mechanism for short selling to improve the stock price efficiency,they are also very meaningful for judging financial derivatives more objective.From the perspective in a wider scope,the present empirical results also supplement the effective market theory and noarbitrage equilibrium theory system,and together with the principal-agent theory and corporate governance theory,the results also further broaden these theories.The research in this thesis also holds important policy and practical significance.Specifically,this research finds that margin trading and short selling can increase market liquidity on the macro level,and they can also decrease market volatility in the case of stock crash.As for the governance effect,the short-selling mechanism can improve the information efficiency of the stock price by improving the governance effect of the company's management.These conclusions reveal that the direct driver of abnormal stock market fluctuations and stock crashes is not exchange transaction.And margin trading and short selling of exchange transaction should not be regarded as equivalent to over-the-counter one and should not be subject to excessive criticism.Furthermore,the research also proves that China's short-selling mechanism has particular characteristics,which is that short selling still has shortcomings in the direct mechanism of value discovery,but the corporate management transmission mechanism can repair its price discovery ability to a certain extent.And that shows the shortselling system in China has the function of making the stock market return to its intrinsic value indirectly,exerting external governance effects on the corporation and also making the stock market return to its intrinsic value.Finally,from the perspective of external policies,short sellers have improved the efficiency of stock price information through corporate governance,proving the importance of good corporate governance for protecting market investors.In summary,the research in this paper provides a new perspective of the short selling system for policy makers,and although the short selling mechanism is one kind of leveraged financial instruments,it should not be regarded as a monster,but a powerful policy tool possessing external governance effects and price return effects.It can also achieve the goal of "Price discovery" by "risk controlling" from the perspective of micro-field.And in response to the development of margin trading mechanisms,policy makers in China should adopt a series of balanced policies to balance the development of both margin trading and short selling,and strive to improve the disclosure of information in the stock market.For corporate governance,policy makers should make more efforts to improve the governance effectiveness of listed companies and increase information transparency to protect investors.In this “post-stock-crash era”,these conclusions hold important policy implications for the construction of China's capital market system.The research in this thesis also has stronger explanatory power and prove to be more robust through unique empirical design.In the empirical analysis of liquidity and volatility,the empirical analysis is divided into four stages according to changes in the stock market,which can help control the control variables at the same stage.This makes the conclusion more robust.In the empirical evidence of short selling,corporate behavior and stock price information efficiency,the endogenous problems caused by the "self-selection" of the selection criteria for the target of margin trading and short selling in China,the research utilize the Instrmental Variable Model and the Treatment Effect Model to correct endogenous biases and adds a series of placebo robustness,acquiring more robust empirical results. |
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