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Korean J Financ Stud > Volume 46(1); 2017 > Article
Korean Journal of Financial Studies 2017;46(1):159-186.
DOI: https://doi.org/10.26845/KJFS.2017.    Published online February 28, 2017.
Motivation of Short-Selling in KOSPI and KOSDAQ Market
Min Cheol Woo, Meong Ae Kim
한국 주식시장에서 공매도거래 유인
우민철, 김명애
We examine the motivation of short-selling activities in Korean stock market using the actual trading data for the period from January, 2008 until March, 2016. Empirical results are as follow. First, short-selling activities are negatively associated with future returns in both KOSPI and KOSDAQ markets. It suggests that short-selling is likely to occur based on information. Second, past returns are positively (negatively) associated with short-selling activities in KOSPI (KOSDAQ) market. In addition, stocks with large capitalization, high price level, or high foreign ownership show a positive relation between past returns and short-selling activities, while a negative relation is observed for small-sized stocks or stocks with low foreign ownership. The results imply that short-selling activities relieve the effect of sharp price fluctuation in KOSPI market, while they tend to accelerate price decline in KOSDAQ market. Third, we failed to find evidence supporting the voluntary liquidity provider hypothesis since order imbalance does not tend to fall after short-selling activities increase. Short-selling activities are not positively associated with contemporaneous volatility and do not show a significant association with future spread. Thus the opportunistic risk bearer hypothesis is not supported, either. In summary, short-sellers in Korean stock market are informed traders and show feedback trading patterns. Short-sale tends to be used in a negative feedback trading strategy for large stocks, which general investors can easily follow informed traders` activities so are often subject to overreaction. For smaller stocks, information of which tends to diffuse slowly, short-selling activities are more likely to be used in a positive feedback trading. This study provides the empirical results from testing several hypotheses about the drivers of short-sales in Korean stock market using comprehensive dataset that includes observations in KOSDAQ market. It also helps to understand the different features of short-selling activities in KOSDAQ market from KOSPI market.
Key Words: 공매도,유가증권시장,정보거래,추세거래,코스닥시장,Feedback Trading,Informed Trading,KOSDAQ Market,KOSPI Market,Short-Sale

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