A unique “T+1 trading rule” in China: Theory and evidence

Unique to the world, China adopts a "T + 1 trading rule", which prevents investors from selling stocks bought on the same day. We develop a dynamic price manipulation model to study the effects of the "T + 1 trading rule". Compared to the "T + 0 trading rule", which all...

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Bibliographic Details
Published in:Journal of banking & finance 2012-02, Vol.36 (2), p.575-583
Main Authors: Guo, Ming, Li, Zhan, Tu, Zhiyong
Format: Article
Language:English
Subjects:
Buy sell agreements
China
Economic models
Investment policy
Investors
Price uncertainty
Securities markets
Securities trading
Stock exchange
Stocks
Studies
T+1 trading rule
Volatility
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Summary:Unique to the world, China adopts a "T + 1 trading rule", which prevents investors from selling stocks bought on the same day. We develop a dynamic price manipulation model to study the effects of the "T + 1 trading rule". Compared to the "T + 0 trading rule", which allows investors to buy and sell the same stocks during the same day, we show that the "T + 1 trading rule" reduces the total trading volume and price volatility, and improves the trend chasers' welfare when trend-chasing is strong. An empirical test using data on China's B-share stock market supports the model's theoretical predictions. [PUBLICATION ABSTRACT]
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2011.09.002