Research On The Pricing Efficiency Of Stock Market Under Short And Non-short Selling Constraints

Margin trading is one of the important stock market trading system. In a long period of time, China’s stock market has been in the "unilateral market" status without short selling mechanism. Margin trading business in China has officially launched since March 31, 2010, marking China’s stock market may be entering an era of short selling. The introduction of short selling mechanism to China’s stock market has become a focus of regulators and investors. So research on this issue will undoubtedly have important academic value and practical significance.Based on Miller’s(1977) theory of stock overvalued and the re-interpretation about the logical starting point of investor disagreement, and by employing the underlying stocks for short-selling in Shanghai stock market as samples, using the Wilcoxon signed-rank test and panel data regression models, we empirically investigate the impact of short-selling and non-shorting constraints on China’s stock market pricing efficiency.The results in this paper are as follows: Cancelling short-selling constraints makes the information content of stock price significantly increased; And re-applying short-selling constraints makes it significantly reduced. The degree of investor disagreement without short-selling constraints is larger than it with short-selling constraints. The abnormal return of stocks increases after cancelling short-selling constraints, which is contrary to our expectation. The effects of investor disagreement on the abnormal return of stocks is positive whether with short-selling constraints or not, however, the marginal effects of investor disagreement on the abnormal return of stocks is positive without short-selling constraints, and it is negative with short-selling constraints. According to the conclusion of this thesis, some policy recommendations such as training investors’ rational thinking about short selling, expanding the scope of margin targets and the refinancing scale, reasonable adjusting the margin ratio to reduce the cost of margin trading, and so on, are proposed for improving margin trading system to promote stock market stability and healthy development.