The Reason And Enlightenment Of Muddy Water Fund's Stocks In The Air

The U.S.stock market is often the first choice for Chinese companies to list due to its mature market supervision and higher valuation premium than other major stock markets.E-commerce companies like Alibaba and Pinduoduo and educational services providers like New Oriental and Hao Wei Lai have attained good profits and reputation.However,due to Covid-19,the U.S.stock market has experienced multiple trade curb recently,and the deterioration of Sino-U.S.relations has caused U.S.regulators to strengthen the supervision of China-based stock companies.Many China-based stocks have become the target of short-selling institutions like "Muddy Water".Among all the shorting cases,Luckin Coffee was forced to delist after the chief financial officer admitted that the company has committed financial fraud.This coffee retail giant,once considered by the capital to be comparable to "Starbucks",after the tide's recession was finally found naked.In face of the ever-changing U.S.stock market in the future,using the enlightenment and reference obtained from Luckin coffee's analysis is quite important to the existence and operations of Chinese companies enlisted in US.In this article,the 2010-2020 Muddy Water Fund's individual short-selling and joint short-selling China-based stock companies are the research objects.First,based on the research of Chinese and foreign scholars' articles on short-selling China-based stocks and the reality and history of short-selling China-based stocks,it is proposed we should use multiple factors from both macro and micro sides,which may have impact on the result of short-selling.In order to verify the usefulness of these factors,this article uses the result of short selling as the explained variable and then establishes a Logit model to analyze the data I collected.Then I pointed out that the scarcer the cash flow,the lower the stock index of the listed place,the more sufficient evidence of shorting,the higher the company's price-earnings ratio,the greater the probability of successfully short-selling China-based stocks.Based on the conclusions of the above quantitative analysis,this article naturally believes the reason why Muddy Waters Fund short-sells China-based stocks because the quality of Chinese companies is worse than that of non-China-based companies.However,after comparing the China-based stock data and non-China-based stock data of muddy water shorts,I was surprised to find that the facts are just the opposite.Compared with non-China-based stock companies,the price-earnings ratio of Chinabased companies is significantly lower and the company's free cash flow and market value are significantly higher than non-China-based stocks,indicating that the financial quality of China-based stocks is higher than that of non-China-based stocks.Moreover,based on calculations of muddy water,the success rate of short-selling non-Chinese stocks is even slightly lower than that of short-selling non-Chinese stocks.The cost of short-selling stocks based on the total number of short report pages is much higher than that of non-Chinese stocks.So the author carried out an in-depth investigation and analysis of the case of Luckin Coffee with this question,and finally found that the reason why Muddy Water focused on short-selling of China-based stocks was because(1)China-based stocks were frequently delisted due to serious financial fraud.The delisting rate is twice that of non-Chinese-based stocks,and the return on shorting China-based stocks is higher;(2)Chinese companies are excessively pursuing the unsustainable business model of rapid expansion,giving short sellers more reasons to short sell China-based stocks;(3)Company owners and operators are more likely to cash in as soon as possible once their company is enlisted,short sellers are more likely to take advantage of it.;(4)China-based companies generally lack the experience to protect their companies from short-selling,while short sellers are all experienced in short selling.Based on the above analysis,this article summarizes the enlightenment brought to us by the Luckin Coffee case.Specifically including(1)increasing the penalties for financial fraud;(2)introducing big data audits;(3)plugging the loopholes in stock pledge;(4)finding a sustainable business model and(5)strengthening the response to short selling.In terms of modeling,the innovation of this article is to combine the existing reasons for the success or failure of short selling in stocks,adding a custom parameter short selling fund evidence sufficiency as a new explanatory variable to establish a logistic regression model.In terms of providing a new perspective,this article found that the quality of China-based stocks is better than that of non-China-based stocks,breaking the impression that China-based stocks are of poor quality.It also explains why there are still a large number of funds like the Muddy Water Fund that are keen to short China-based stocks when the quality of China-based stocks is generally good.