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The role of shorting on market anomalies : evidence from China

English Abstract

Following Israel and Moskowitz (2013), I examine the role of shorting on the profitability of size, value and momentum strategies in China stock market. China launched the margin trading and short selling mechanism on March 31, 2010 and only stocks in a designated list can be sold short and this mechanism provides a further opportunity to examine the practical shortable returns for China. My major results are as follows. (1) The long position makes up most of the profit in the full sample period and in both practical and theoretical circumstances in partly shortable period. (2) Shorting plays an increasingly important role for value strategy when firm size increases in the full sample period, but shows no reliable pattern in partly shortable period. (3) Size, value and momentum strategy can generate higher return based on shortable stocks than the theoretical strategy, as the practical shortable stocks perform worse than non-shortable stocks in the short side. (4) I find little evidence that institutional ownership shows any significantly effect to size, value and momentum strategies and only marginal evidence that the trading cost has negative relation to the profitability of size strategy. This study offers additional insights to the role of shorting in China stock market.

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Zhao, Yan


Faculty of Business Administration


Department of Finance and Business Economics


M. Sc.


Stock exchanges -- China

Short selling


Ren, Jin Juan

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