TITLE:
The Influence of Margin Trading and Short Selling on the Price Efficiency of China’s Stock Market—Based on Portfolio Perspective
AUTHORS:
Linjie Huang
KEYWORDS:
Margin Trading and Short Selling, Short Selling Restriction, Price Efficiency, Hedge Portfolio
JOURNAL NAME:
American Journal of Industrial and Business Management,
Vol.9 No.1,
January
10,
2019
ABSTRACT: In this
paper, we use the natural experiment, the “false vaccine event” happening in Changsheng Life
Biotechnology Co., Ltd. in
the biological vaccine industry, to study whether the margin trading and short
selling restriction will have an impact on the stock pricing. We built four
different hedge portfolios based on the nature of whether the 22 stocks in the
biological vaccine industry could be shorted, and the simulation of portfolio
returns was shown three months after the “false vaccine event”. The cumulative
return of the portfolio reached a level of 10% - 20%. Furthermore, based on
the adequacy of stock price information content and the timeliness of stock
price response to information, this paper constructs an index to measure the
pricing efficiency of individual stocks. Through regression analysis, we find
that among 22 stocks in the biological vaccine industry, the pricing efficiency
of stocks which are allowed to carry out margin trading and short selling
business is significantly higher than that of which are not allowed to carry out
margin trading and short selling business. Based on the difference of return
characteristics and pricing efficiency index of hedge portfolio, this paper
shows that margin trading and short selling system can help to correct the
mispricing of individual stocks and improve the pricing efficiency of the
market.