Empirical Analysis On The Abnormal Return Of Short Selling Shares Portfolio

Margin and short selling trading is a basic trading system in an experienced stock market. In China, the short selling trading started on the 31 st, March, 2010, representing the establishment of short selling mechanism in A stock market. Since the short selling trading system is in the early stage of development in China, relevant trading rule and system design are changing and adjusting continuously. Carrying out a study on the short selling trading mechanism is able to provide a reference for the investment strategies to the experienced investors, which can provide some references for improving the securities lending market and to enhance the operational efficiency in China’s stock market.Specifically, this essay initially concerns the operational mechanism of short selling trading. Starting from illustrating the origins of short selling trading to introducing its development and the present characteristic in China; and from analyzing major overseas short selling trading securities mode to clarifying the short selling extended credit mode in China; and summarize the short selling investors’ trading purpose and investment strategy. It points out that the short selling trading system designed in China is very cautious in which the trading rule is in a gradual and opened manner, which also directly leads to the unbalanced development of the margin and short selling trading business in China, and the willingness on the short selling trading is not high. On the other hand, the selling feature in short selling enriches different ways of transactions. For investors, short selling can be combined with financial investing tools by using a variety of trading strategies to achieve the speculation, arbitrage or hedging purpose.Secondly, this essay is written from the perspective of abnormal return obtained in short selling trading to analyze the actual operational effect of short selling trading. The research subjects are underlying stocks for short selling between Shanghai and Shenzhen from the 31 st, March, 2010 to 31 st, December, 2014(a total of 57 months).The research uses a combination of calendar and constructs three dynamic samples by setting absolute standards, relative standards and growth standards in the sample. It uses CAMP one-factor model and Fama three-factor model to regress in order to determine the abnormal return by comparing the actual return in the largest short selling stock portfolio with the average return in the market. Testing whether the negative abnormal return is significant is to judge whether short selling trading gains excess return in the overall trend of the stock market. The empirical results show that margin and short selling investors do not gain significant negative abnormal return in China. In otherwords, short selling investors do not earn excess return in the average return in the market.