The impact of short selling and margin trading on intraday pattern of bid-ask spreads : Evidence from the Taiwan Stock Exchange

• Main Authors: Ni, Cih-Ying, 倪慈霙
• Other Authors: Cheng, Lee-Young
• Format: Others
• Language: en_US
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/14157622811099063618

碩士 === 國立中正大學 === 財務金融研究所 === 100 === Previous studies suggest that the bid-ask spreads varies during a trading day following a U-shaped pattern. One explanation for this observation is that it is the result of changes in information asymmetry costs, which are caused by the informed traders over the trading hours, assuming the other costs are fixed. Other literature report that a short seller is able to take advantage of private information by trading shares before negative information reaches the public. Similar arguments apply to margin purchasers. In this study, the intraday pattern of short selling, margin trading activities and bid-ask spreads is investigated. Our empirical results strongly affirm that the intraday patterns of bid-ask spreads, short-sales and margin-trades exhibit a U- or a reversed J-shaped patterns in the TWSE. In light of the adverse information component in the spread increases with informed trades, we find that the adverse information costs are significantly positively related to short sales and margin purchases. The bid-ask spreads are found to be positively affected by short selling and margin trading activities through the adverse information component in the bid-ask spreads.