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Does the T + 1 rule really reduce speculation? Evidence from Chinese Stock Index ETF
Author(s) -
Chen Xinyun,
Liu Yan,
Zeng Tao
Publication year - 2017
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12330
Subject(s) - speculation , economics , market liquidity , stock market , financial economics , rule based system , empirical research , china , econometrics , monetary economics , computer science , finance , mathematics , law , paleontology , statistics , biology , programming language , horse , political science
Stock market in China is subject to the T + 1 rule, which requires investors to hold the asset for at least 1 day before selling. This rule was initially imposed in the mid‐1990s, replacing the previous T + 0 rule, to prevent excessive speculative trading. Given the considerable changes in China's financial market over the past 20 years, it is controversial whether the T + 1 rule should be replaced by the T + 0 rule in today's market. In this paper, we empirically test the effect of the T + 1 rule on market speculation. To identify potentially different impacts of the T + 1 and T + 0 rule, we choose a unique pair of CSI 300 ETF s, one subject to the T + 1 rule while the other to the T + 0 rule. Based on an error correction model, we develop an empirical methodology to test intraday speculation in the ETF price. Our empirical results show that, at least under current market condition, the T + 1 rule reduces the price efficiency and spurs more speculation when the market liquidity is not in a shortage.