Effects of short-selling regulations on overpricing and liquidity in the Malaysian stock market
This report investigates the effects of short-selling regulations in the Malaysian equity market on market liquidity and overpricing. Our results indicate that during a financial crisis, short-sale constraints will not support stock prices, and instead lead to lower abnormal returns. This disproves...
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| Main Authors: | , , |
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| Other Authors: | |
| Format: | Final Year Project |
| Language: | English |
| Published: |
2013
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| Subjects: | |
| Online Access: | http://hdl.handle.net/10356/51589 |
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| Institution: | Nanyang Technological University |
| Language: | English |
| Summary: | This report investigates the effects of short-selling regulations in the Malaysian equity market on market liquidity and overpricing. Our results indicate that during a financial crisis, short-sale constraints will not support stock prices, and instead lead to lower abnormal returns. This disproves our hypothesis that short-sale constraints lead to stock overpricing during a financial crisis. However, shortable stocks earn lower abnormal returns in general, indicating that short-sale constraints do not support stock prices only in periods of financial crisis. Our results, using bid-ask spread and intra-day volatility indicate that short-sale constraints lead to reduced market liquidity during both periods of financial crisis and pre-financial crisis. This supports the hypothesis that short-selling constraints prevent pessimistic investors from trading on the stocks, which lead to lower trading volume and liquidity. |
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