Short-selling Mechanism and Market Liquidity and Volatility:An Empirical Research on Hong Kong Securities Market in China

Based on the data from Hong Kong securities market in China,this paper makes an empirical research on the relations between short-selling mechanism and market liquidity and volatility.The results are as follows: firstly,although there is no long-term co-integration relation between the change in short sale volume and the change in market liquidity,the short-selling mechanism,to some extent,can provide liquidity for the stock market in the short term;secondly,the change in market liquidity is the cause of the change in short sale volume in the long term;thirdly,the change in short sale volume provides an explanation of the change in market volatility: the more the short sale volume is,the greater the market volatility is,that is to say,the short-selling mechanism,to some extent,gives rise to the increase in market volatility.The rank sum test shows that short-selling mechanism can significantly increase market liquidity and volatility and the application of Up-Tick can significantly decrease market liquidity and volatility;furthermore,the suspension of price restriction on short-selling does not have distinct influences on short sale volume,but can significantly increase market liquidity and volatility.