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Short sales function of stabilizing the market mechanism

[Abstract] This article refers to a large number of domestic and foreign scholars of the research findings, the introduction of short selling has not led to falling stock prices, volatility, on the contrary, limiting short selling may lead to market collapse, from the theoretical analysis of the short selling selling Empty mechanism has the function of stabilizing the market. [Key words] Securities the market short selling I. Introduction and Review of the margin trading, an investor will be out of stock expected to decline to pay a certain percentage of deposit, while the broker to borrow shares to sell at current prices after a credit transaction. Short sellers sell shares must be deposited the proceeds of the securities company or related bodies, as the stock price (also known as short selling) of the collateral. Simply put, short selling refers to the short sale. Initially used for speculative short selling, an estimated current stock price is too high, short selling the stock through pre-lock gain, and then fell again to be trading the underlying stock repurchase operations. Short history of nearly 400 years, in the first organized market - Amsterdam Stock Exchange (Amsterdam Exchanges), the short became very popular. Short selling is a kind of leverage, that is, short sellers only need to put some of the initial margin can be several times of margin, therefore, his benefits and risks are magnified. In the study of financial root cause of the crisis occurred, many people targeting the short selling that short selling provides a mechanism for speculators to combat market opportunities, the U.S. stock market crash of 1929, short selling transactions are accused of King et al (1993) results show that short selling price bubbles have no significant impact; Porter, Smith (2000) based on experimental results indicate that short selling can significantly reduce the amount of the market bubble and the duration of the bubble . But there are many scholars have found short sales did not cause significant fluctuations in the stock market. 1997 JamesJAngel the New York Stock Exchange (NYSE) stocks for the 144 subjects studied fell short selling is associated with, the results show that the formation of regular trading fueled the sell into the effects of instruction is the root cause stock market volatility, The stability of the stock market is highly destructive, increased market volatility is an important reason. August 2000, Chase Manhattan Bank study shows that short-selling shares in the New York Stock Exchange (shortinterest) and the NYSE composite index showed more similarity between the change in trend, which shows that the amount of short selling stock index between the same a very significant positive relationship, the index rising short time a large amount of short selling a small amount of index downturn, that short selling can play a gentle role of stock index volatility. Hong and Stein (2003) who through the establishment of a heterogeneous agent model (heterogeneous agent model) of short-selling traders of short selling constraints can prevent the stock market has fallen only to find that short selling restrictions may lead to market collapse instead. Liaoshi Guang and Chao-jun (2004) Using Cointegration and Granger causality test method to study the stock market in Taiwan, China from August 1998 to February 2004 between the short-selling mechanism and the relationship between stock prices, the results showed that sold transaction volume and the weighted index space between the long-term stability of the cointegration relationship, the weighted index Granger causes the amount of short selling, and short-weighted index of turnover is not Granger cause the stock market short selling the market mechanism would not increase the volatility of , while short selling transactions and the weighted index of a positive relationship exists between, indicating that short the market mechanism can play a stabilizing role of market volatility. Second, the stability of short sales market mechanisms function theory theory, the introduction of short selling in the stock market, stock market volatility can play a stabilizing role in reducing the volatility in the stock market situation, play a stabilizing role in the securities market. A period of time, due to a variety of securities on the stock market has determined the number of supply, all kinds of securities does not have the appropriate alternative, if the stock market is limited to spot trading,[link widoczny dla zalogowanych], the stock market will show a unilateral operation, the supply and demand serious imbalances, the market will inevitably huge shock, in such a market mechanism under which the phenomenon of spike prone. In the spot market, the introduction of short selling securities trading mechanism, can increase the elasticity of supply of the underlying securities, primarily through the following implementation of such a mechanism, that is, when the stock market price of certain stocks as investors sought the excessive or malicious become inflated hype, the market in the rational investors or speculative short sellers will be aware of this phenomenon in a timely manner, the expected price of the shares at some point in the future will fall, so they will come through the short selling These prices are significantly overvalued short selling the stock, so that these prices are overvalued stock supply will be significantly increased ease in this regard the stock market, a shortage of these tensions, suppressed the stock price bubble continues to generate and expansion of the short-selling the other hand, these investors to the stock market will transfer to other investors in a stock is overvalued signal, this in a timely manner so that investors clearly recognize that the stock market bubble, the stock price back up to the real investment value. In addition, when these prices are overvalued stock prices fall due to leaving when the bubble burst, investors in these stocks earlier due to short delivery due to re-buy these stocks need to be so on the one hand will increase the market demand for these stocks , to some extent act as a supply and demand situation which will make stock prices will revert to the true value of the level, so as to stabilize the stock market effect. Similarly, the stock market downturn, market forces will be very weak short-selling, when traders will buy short selling the stock short in order to be prepared for delivery in the next due date, so that when the market many investors on the stock and the demand is low, and most of them hold out, the short traders to alleviate the situation of oversupply of shares on the market, renewed investor enthusiasm.