Study On Mechanism Of Short Sales In Chinese Stock Market

After the reform of Chinese stock market, the China Securities Regulatory Commission issued "Experimental Managerial Methods of Securities Firms in Margin Transaction" and "Experimental Instruction of Securities Firms Internal Control of Margin Transaction" on Augest 1st, 2006.It indicates the formal setting out of Margin Transaction business among securities firms. The restarting of Margin Transaction business means Chinese market will bring in mechanism of Short Sales, that's to say, the market will break up the limitation of the only way of unilateral long position. This will be surely good for the future development of Chinese stock market.Firstly, this paper qualitatively analyses the basic concept, historical experience, basic function and potential risk of the mechanism of short sales. Then the writer empirically analyses Hong Kong stock market data through several aspects, among which the writer uses dummy variable regression method and regression residue based EG two steps cointegration test. After that, the writer lucubrates the influences of bringing in short sales in Hong Kong market.This paper has discussed the basic concept, historical experience, basic function and potential risk of mechanism of Short Sales as completely as possible. And after analyzing the mechanism of Short Sales and the characteristic of Chinese stock market, it gets a result that Chinese stock market should bring in Short Sales mechanism. After empirically analyzing Hong Kong stock market and the influences of bringing short sales in Hong Kong market, it also indicates the gap between the empirical result and theory: the mechanism of Short Sales and market volatility has uncertain quantitative relationship, and there could not lead to the result that higher exchange volume lower volatility. Then it gives out some reasons and prospects the influences of bringing Short Sales in Chinese market at the end.