How Does Short Selling Affect Stock Liquidity
How Does Short Selling Affect Stock Liquidity
Author：PAN Lingyun，DONG Zhu Journal：China Economic Studies Date：2021（4）
Abstract: Liquidity is the soul of the stock market，and it is related to the allocation efficiency of the entire capital market． How does short－selling investors as informed traders affect stock liquidity? This paper examines the impact of short－selling on stock liquidity using the 2010－2014 China A－share market data． This paper arrives at three conclusions． First，short－selling increases stock liquidity． After using the instrumental variable method and the“transfer and vouchers”system as a natural experiment to alleviate endogeneity problems，the conclusion is still significant． Second，short－selling increases stock liquidity through strengthening the transparency of corporate information． Third，the impact of short－selling on stock liquidity is more pronounced in companies with poor corporate governance and low competition in the industry's product market．
Key Words: short selling; stock liquidity; information transparency; corporate governance; product market competition
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