The determinants of short selling: evidence from the Hong Kong equity market


  • Michael McKenzie,

    1. Discipline of Finance, The University of Sydney Business School, The University of Sydney, Sydney 2006, NSW, Australia
    2. Centre for Financial Analysis and Policy (CFAP), Cambridge University, Cambridge, UK
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  • Ólan T. Henry

    1. Department of Economics, The University of Melbourne, Melbourne, Australia
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  • The authors would like to acknowledge the financial support of grants from the ARC and the Australian Centre for Financial Studies in undertaking this research project. We would also like to thank an anonymous referee whose comments greatly improved the paper.

JEL classification: G12


While most financial regulators agree that short sellers have an important role to play in ensuring an efficiently functioning market, it is interesting to note that many did not hesitate to ban short selling during the recent financial crisis. This apparent contradiction most likely stems from a lack of understanding about what motivates short trading. In this paper, we focus on the determinants of short selling during ‘normal’ trading in the Hong Kong stock market. We find that dividend payments, company fundamentals, risk, option trading, the interest rate spread and past returns and short selling are all significant determinants of short selling.