The impact of margin trading and short selling on the investment-to-price sensitivity. Evidence from China |
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| Affiliation: | 1. Business School, Zhengzhou University of Aeronautics, China;2. School of Accounting, Guangdong University of Finance, China;3. Center for Accounting, Finance and Institutions, School of Business, Sun Yat-sen University, China;4. School of Management, Xiamen University, China;1. School of Humanities and Social Science, Beihang University, Beijing, PR China;2. College of Business, University of Texas at San Antonio, TX, United States |
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| Abstract: | Employing a database of seven successive short-selling and margin trading ban lifts in the Chinese stock markets during the period 2010–2020, I investigate the impact of leveraged trading transactions on the investment-to-price sensitivity. I also examine whether stock liquidity and institutional shareholdings affect the investment sensitivity subsequent to the lift of short-selling and margin trading constraints. The results from the panel data regression analysis show that lifting bans lead to less corporate investment and a decrease of the investment-to-price sensitivity between 0.29% and 0.44%. Moreover, the regression results reveal that the investment-to-price sensitivity is stronger for more liquid stocks, while the proportion of institutional shareholdings does not affect significantly the corporate investment sensitivity. |
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