Spillovers of price efficiency and informed trading from short sales to margin purchases in absence of uptick rule

Yih Wen Shyu, Kam C. Chan, Hsin Yu Liang*

*Corresponding author for this work

Research output: Contribution to journalJournal Article peer-review

9 Scopus citations

Abstract

We examine the informativeness of short selling on margin buying activities around corporate earnings announcements before and after the removing of uptick rules for some stocks in Taiwan. Whereas most previous studies have studied the effect of short selling on the shorted stocks themselves, it is not clear if there is an information spillover effect from informed short sellers to uninformed margin traders as it pertains to the impact of removing short selling restrictions. Our findings suggest that: (1) Both short-selling and margin-buying activities are effective in improving the price efficiency, but the effect of short-selling on price efficiency is stronger than that of margin-buying; (2) For the stocks without uptick rule, short-selling has significant information spillover effects on margin-buying around earnings announcements especially for firms with negative earnings surprises; and (3) Using stock price synchronicity, we show that the removal of the uptick rule significantly improves stock price informativeness and favors more informed trading.

Original languageEnglish
Pages (from-to)163-183
Number of pages21
JournalPacific Basin Finance Journal
Volume50
DOIs
StatePublished - 09 2018

Bibliographical note

Publisher Copyright:
© 2017 Elsevier B.V.

Keywords

  • Margin trading
  • Price efficiency
  • Short sale restriction
  • Spillover effect

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