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

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  • Shyu, Yih-Wen
  • Chan, Kam C.
  • Liang, Hsin-Yu

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.

Suggested Citation

  • Shyu, Yih-Wen & Chan, Kam C. & Liang, Hsin-Yu, 2018. "Spillovers of price efficiency and informed trading from short sales to margin purchases in absence of uptick rule," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 163-183.
    • Handle: RePEc:eee:pacfin:v:50:y:2018:i:c:p:163-183
    DOI: 10.1016/j.pacfin.2017.02.006
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    Cited by:

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