《dence from Hong Kong market》.pdfVIP

The impact of short selling on the volatili- ty and liquidity of stock markets: evi- dence from Hong Kong market Miaoxin Chen1 Zhenlong Zheng2 1Department of Finance, Xiamen University, China. cutecmx@163.com 2Department of Finance, Xiamen University, China. zlzheng@ Abstract crashes. While supporters of short-selling argue that it increases information effi- The debate among various market partic- ciency and liquidity of stock markets, and ipants on the short-selling of securities improves the risk sharing mechanism of continues today. Opponents of short- economic system. selling argue that it disrupts orderly mar- The debate among various market par- kets by causing panic selling, high vola- ticipants on the short-selling of securities tility, and market crashes. So this paper continues today. One of the most debata- investigates what the impact of short sell- ble issues concerns whether or not short ing on the volatility and liquidity of the selling exerts an unfavorable effect on the Hong Kong stock market is, and the re- volatility and liquidity of stock markets. sults indicate that short selling volumes In an attempt to answer this issue, this do not Granger-cause market volatility, paper investigates the relationship be- but volatility Granger-cause short selling tween short selling and the stock market volumes. Moreover Granger causality volatility and liquidity using Granger tests show that there is a bi-dir