Short-selling, margin-trading, and stock liquidity: Evidence from the Chinese stock markets

Ye, Qing, Zhou, Shengjie ORCID: 0000-0003-0422-3538 and Zhang, Jie (2020) Short-selling, margin-trading, and stock liquidity: Evidence from the Chinese stock markets. International Review of Financial Analysis, 71. p. 101549.

Text
Short-selling, margin-trading, and stock liquidity_19_AM.pdf - Author Accepted Manuscript
Download (19MB) | Preview

Official URL: http://dx.doi.org/10.1016/j.irfa.2020.101549

Abstract

This paper examines the impacts of two forms of leveraged trading—margin trading and short selling—on the trading liquidity of individual stocks in China. We find that trading liquidity for relevant stocks generally improves after restrictions on leveraged trading are removed. However, margin trading and short selling have opposite impacts on liquidity. During ordinary periods, margin trading benefits liquidity, whereas short selling damages liquidity; however, during market downturns, their roles are reversed. We also provide evidence suggesting that short sellers are informed traders in China and that short selling reduces stock liquidity because of the increased risk of adverse selection faced by uninformed traders.

Item Type:	Article
Uncontrolled Keywords:	Margin trading, Short selling, Stock liquidity, Chinese stock markets
Depositing User:	Symplectic Admin
Date Deposited:	13 Jan 2021 09:02
Last Modified:	18 Jan 2023 23:04
DOI:	10.1016/j.irfa.2020.101549
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3113034