Short-sale Constrains and Stock Mispricing:The Evidences from the Margin Transactions Institution
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| Title | Short-sale Constrains and Stock Mispricing:The Evidences from the Margin Transactions Institution
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| Author | Li Ke Xu Longbing and Zhu Weihua |
| Organization | School of Finance, Shanghai University of Finance and Economics, Shanghai, 200433, China,Shanghai Stock Exchange, Shanghai, 200120, China |
| Email | xlb@mail.shufe.edu.cn |
| Key Words | Short-sale Constrains; Mispricing; Trading Strategy; Margin Transactions |
| Abstract | Recently, the establishment of the margin transactions institution in China's stock market provides an ideal research background to empirically study the effect of short-sale constrains on stock mispricing. We exploit the natural experiment (plasticizer event in wine industry) to the shock of the listed companies in wine industry and empirically test the effect of short-sale constrains on stock mispricing. According to short-sale constrains on stock, we construct four hedge portfolios, and find our investment strategy produce a daily excess return 0.5%, standard deviation 1.5%, and Sharpe ratio 33%. The empirical results indicate the portfolios achieved high return with low risk. Further regression analysis find the stocks with short-sale constrains are seriously overvalued, and the fundamental value of stock does not contribute to explain the mispricing. Our evidences suggest that the short-selling restrictions lead to the stock overvalued, short-selling helps to correct mispricing, and improve the stock market efficiency. We design a hedge strategy with short-selling and event-driving, producing significant excess return. |
| Serial Number | WP624 |
| Time | 2014-08-05 |
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