Margin-trading, Short-selling and the deterioration of crash risk: Evidence from China
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| Title | Margin-trading, Short-selling and the deterioration of crash risk: Evidence from China
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| Author | Chu Jian and Fang Junxiong |
| Organization | FUDAN University |
| Email | 13210690028@fudan.edu.cn；jxfang@fudan.edu.cn |
| Key Words | short selling; margin trading; crash risk; asymmetry |
| Abstract | This paper studies the influence of short-selling and margin-trading program in China on crash risk. We find that contrary to the intention of CSRC, the implementation of this program does not decrease but increase the stocks’ crash risk. The reason is that the program has two unique characteristics: the criteria for eligible stocks and simultaneous short-selling and margin-trading for the same stock. The criteria for eligible stocks means the selected stocks have less crash risk ex ante, and simultaneous short-selling and margin-trading for the same stock means the investor can make short-selling and margin-trading for the eligible stocks at the same time. The asymmetry of margin-trading and short-selling exacerbates the crash risk. |
| Serial Number | WP1025 |
| Time | 2016-02-02 |
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