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Does the T + 1 rule really reduce speculation? Evidence from Chinese Stock Index ETF

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  • Xinyun Chen
  • Yan Liu
  • Tao Zeng

Abstract

Stock market in China is subject to the T + 1 rule, which requires investors to hold the asset for at least 1 day before selling. This rule was initially imposed in the mid‐1990s, replacing the previous T + 0 rule, to prevent excessive speculative trading. Given the considerable changes in China's financial market over the past 20 years, it is controversial whether the T + 1 rule should be replaced by the T + 0 rule in today's market. In this paper, we empirically test the effect of the T + 1 rule on market speculation. To identify potentially different impacts of the T + 1 and T + 0 rule, we choose a unique pair of CSI 300 ETFs, one subject to the T + 1 rule while the other to the T + 0 rule. Based on an error correction model, we develop an empirical methodology to test intraday speculation in the ETF price. Our empirical results show that, at least under current market condition, the T + 1 rule reduces the price efficiency and spurs more speculation when the market liquidity is not in a shortage.

Suggested Citation

  • Xinyun Chen & Yan Liu & Tao Zeng, 2017. "Does the T + 1 rule really reduce speculation? Evidence from Chinese Stock Index ETF," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(5), pages 1287-1313, December.
    • Handle: RePEc:bla:acctfi:v:57:y:2017:i:5:p:1287-1313
    DOI: 10.1111/acfi.12330
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    2. Yi Jiang & Stewart Jones, 2018. "Corporate distress prediction in China: a machine learning approach," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(4), pages 1063-1109, December.
    3. Hua Wang & Liao Xu, 2019. "Do exchange‐traded fund flows increase the volatility of the underlying index? Evidence from the emerging market in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(5), pages 1525-1548, March.
    4. Xiong Xiong & Chunchun Luo & Ye Zhang & Shen Lin, 2019. "Do stock bulletin board systems (BBS) contain useful information? A viewpoint of interaction between BBS quality and predicting ability," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(5), pages 1385-1411, March.
    5. Zhuwei Li & Xuejiao Lu & Yuan Fu, 2022. "Interaction influence of trading rules on the quality of stock markets: the price limit rule and day trading rule from the Shanghai and Shenzhen Stock exchanges," Applied Economics, Taylor & Francis Journals, vol. 54(56), pages 6467-6479, December.
    6. Jilong Chen & Liao Xu & Yang Zhao, 2020. "Do ETF flows increase market efficiency? Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(5), pages 4795-4819, December.
    7. Bao, Zhengyang & Kalaycı, Kenan & Leibbrandt, Andreas & Oyarzun, Carlos, 2020. "Do regulations work? A comprehensive analysis of price limits and trading restrictions in experimental asset markets with deterministic and stochastic fundamental values," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 59-84.
    8. Zhu, Hongbing & Yang, Lihua & Zhang, Bing, 2024. "Asymmetric trading restriction and return comovement," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 94(C).

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