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Has the Information on the Handling of Violations by the Chinese Listed Companies Been Leaked in Advance——Evidence from Liquidity and Short Selling

【Authors】
YANG Xingzhe, ZHOU Xiangyi
【WorkUnit】
Xi'an Jiaotong University, 710049.
【Abstract】

This paper tests the possibility of information leakage prior to violation handling from the perspective of liquidity and short selling. It shows that, firstly, the abnormal illiquidity level and the abnormal short selling amount are significantly positive before the handling results is declared, and both are significantly negatively correlated with the abnormal return on the announcement day. Secondly, the stock with the lowest abnormal return on the announcement day has also more abnormal illiquidity in advance, while the stock with the highest abnormal return was even lower shorted before the announcement. Finally, when the gap between the disposal date and the announcement date is more than 10 days, the stock with higher abnormal return also has lower relative short selling amount before the announcement, so the informed trading dominated the market and the hypothesis of information leakage of the violation handling is more consistent with our data. The results of this paper infer that regulators should strengthen internal management and improve work efficiency, and release the handling documents timely in order to reduce the advance leakage of information, which could be conducive to the healthy development of the stock market.

 

JEL:G14, G18, G34

【KeyWords】
Violation Handling, Informed Trading, Liquidity, Short Selling