Short selling constraints and stock returns volatility: Empirical evidence from the German stock market

While the occurrence of insider profits from directors’ dealings has been discovered for international stock markets, the industry effects of executives’ transactions have been scarcely part of previous research. Since on a firm-specific level, there are indications for a positive relation between companies’ investments in research and development (R&D investments) and abnormal returns, this paper examines whether these results also hold on an industry level. We elaborate and apply an event study for all companies listed in the HDAX at the German stock market between January 2013 and August 2018, firstly on an overall level and secondly on an industry level within the HDAX. Additionally, we analyze the switch in the regulatory framework from national to EU legislation (WpHG to MAR) in 2016 and the potential consequences for directors’ dealings and stock market reactions. Our analysis shows that insiders in general act as contrarian investors. However, our analysis of directors’ dealings related to potential industry effects does not lead to significant abnormal returns. The shift in insider trading regulation from German to European legislation in the middle of the sample period leads to a decreasing in abnormal returns over time. Our results are robust to different market models as well as size effects. We conclude that outside investors cannot profit from monitoring and analyzing directors’ dealings on an industry level and recommend a firm-specific level.

Download Full-text

Short selling regulation, return volatility and market volatility in the Athens Exchange

Studies in Economics and Finance ◽

10.1108/sef-06-2015-0157 ◽

2017 ◽

Vol 34 (1) ◽

pp. 82-104 ◽

Cited By ~ 2

Author(s):

Charilaos Mertzanis

Keyword(s):

Stock Market ◽

Stock Returns ◽

Empirical Evidence ◽

Market Price ◽

Short Selling ◽

Market Volatility ◽

Short Sales ◽

Content Type ◽

Regulation Policy ◽

The Impact

Purpose The relationship between short selling, market volatility and liquidity remains an object of intensive research. However, empirical evidence is yet to provide a conclusive elucidation of this relationship by examining aspects of market fragmentation in the form of different market settings, different timing and different stocks under coverage, among others. This paper aims to contribute to the debate by investigating the impact of short selling on market volatility and liquidity in the Athens Exchange (ATHEX) under three different periods of short sales restrictions. Design/methodology/approach Two hypotheses are tested using econometric methodologies (co-integration and Granger-causality tools). Findings The empirical results indicate that when short selling is allowed, aggregate stock returns are in the short-term more volatile, but the liquidity of the market is not significantly affected. This might be the result of significant imbalances between supply and demand of stock caused by short-selling restrictions, leading to market price fluctuations. Research limitations/implications The analysis of empirical evidence needs further expansion and association with institutional firm-level and country-level elements to provide a more comprehensive understanding of the impact of short selling on market volatility and liquidity. Practical implications Stock market regulation involving short-selling restrictions have different implications according to extent and degree of stringency of the restrictions as well as the market on which they are imposed. That is especially important for the assessment of the market impact of the recent European Union regulation on short selling that has been imposed upon all EU member-States alike. Social implications Financial regulation policy must balance the benefits and costs for retail investors of imposing short-selling restrictions on stock market trading. Originality/value First-time empirical evidence is provided on the impact of short selling regulations on market volatility and liquidity of ATHEX highlighting the potential effectiveness of regulation policy.

Download Full-text

NEURAL NETWORK VS LINEAR MODELS OF STOCK RETURNS: AN APPLICATION TO THE UK AND GERMAN STOCK MARKET INDICES

Fuzzy Sets in Management, Economics and Marketing ◽

10.1142/9789812810892_0012 ◽

2001 ◽

pp. 181-193

Author(s):

ANGELOS KANAS

Keyword(s):

Neural Network ◽

Stock Market ◽

Stock Returns ◽

Linear Models ◽

German Stock ◽

The Uk ◽

German Stock Market

Download Full-text

The Stability of Factor Sensitivities of German Stock Market Sector Indices: Empirical Evidence and Some Thoughts about Practical Implications

Journal of Risk and Financial Management ◽

10.3390/jrfm12030140 ◽

2019 ◽

Vol 12 (3) ◽

pp. 140

Author(s):

Wegener ◽

Basse

Keyword(s):

Structural Change ◽

Stock Market ◽

Empirical Evidence ◽

Sovereign Debt ◽

Debt Crisis ◽

Factor Models ◽

Sovereign Debt Crisis ◽

German Stock ◽

German Stock Market ◽

Three Factor

This empirical study estimates 18 single and 18 three-factor models and then tests for structural change. Break dates are identified where possible. In general, there is some empirical evidence for parameter instabilities of the estimated beta coefficients. In most cases there is no or one break point, and in some cases, there are two structural breaks examining the three factor models. The estimated factor sensitivities of single beta models seem to be even less strongly affected by structural change. Consequently, beta factors are probably more stable than some observers might believe. The break dates that have been identified generally seem to coincide with crises or recoveries after stock market slumps. This empirical finding is compatible with the point of view that bull-markets or bear-markets could matter when estimating beta coefficients. In general, the timing of structural change often seems to coincide with either the bursting of the dot-com bubble or the recovery of stock prices thereafter. The banking industry is the most notable exception. In this sector of the German economy, the global financial meltdown and the sovereign debt crisis in Europe have been of high relevance. Consequently, the internet hype of the late 1990s and the early 2000s seems to be more important for the German stock market than the US subprime debacle and the accompanying European sovereign debt crisis.

Download Full-text