The effect of the union paper case on stock price and volume behaviour of Malaysian stocks

• Main Authors: Heng, Chong Eng, Yiu, Lai Peck, Hoe, Peh Chern
• Other Authors: Ho Kim Wai
• Format: Final Year Project
• Language: English
• Published: 2014
• Subjects: DRNTU::Business
• Online Access: http://hdl.handle.net/10356/55534
• Institution: Nanyang Technological University

Many of the major stock exchanges in the world permit regulated short selling, among them are the United States, Australia, and Hong Kong. At the time of our research, short selling is still illegal on the Malaysian stock market. The Union Paper Holdings Bhd case on the booming KLSE in June 1993 highlighted the issue of short selling whereby six people were convicted of short selling Union Paper's shares and KLSE had to conduct a massive buy-in of Union Paper's shares due to the large amount of short selling. The purpose of this project is to study the developments in the Union Paper's case and to examine whether perceived sh01t sales restrictions have any effects on the stock returns volatility, the leverage effect and the volume return relation of stocks on the KLSE and CLOB. The sample period is divided into three sub-periods: Pre-June, June and Post-June with the June period as our event window (where it is assumed that there is 'self-imposed' restraint on short sales on the part of investors due to KLSE's tightening of control on short selling). Our results show that there is no significant differences in the stock returns volatility between the three sub-periods. No evidence of leverage effect is found for the twenty sampled counters in all the sub-periods. The UOB-OTC Index shows no significant leverage effect for all the three subperiods. However, the KLSE Composite Index shows significant leverage. effect in the June period and reverse leverage effect in the Post-June period. All the twenty counters and the KLSE Composite Index show significantly positive volume-return relation in the Pre-June and Post-June periods and insignificant volume-return relation in the June period. The UOB-OTC Index shows significantly positive volume-return relation in the Post-June period, while the volume-return relationship is insignificant for both June and Pre-June periods.