Research on the Impactof Uptick Rules of Short-selling on Market Quality in China's Capital Market:Based on the Perspective of Agent-based Modeling
For the past years,the margin trading and short selling(MTSS)scale in the A-share market has been expanding.However,when compared to overseas markets,there are significant differences in two key indicators:the proportion of short selling balance to total margin trading balance and the proportion of short selling transac-tion volume to total market transaction volume.Therefore,relaxing the constraints on short selling is considered a crucial measure to further enhance the activity of short selling in the A-share market,promoting a balance between long and short forces.This study adopts a computational experimental approach by constructing an artificial stock market with microstructure features and trading behavior characteristics resembling the A-share market.It examines the impact of the current rules on canceling short selling uptick rules and extreme scenarios where investors intensify short selling during market downturns.Based on these scenarios,the study investigates the influence of uptick rules on market quality and subsequently assesses the necessity of such rules in the A-share market.The findings of the study are as follows:Firstly,after canceling the short selling uptick rules in the A-share market,restrictions to short selling transactions are relaxed,allowing aggressive short sellers to submit more active orders.This results in a significant increase in the scale of short selling and a noticeable improvement in the overall activity of the short selling market.Secondly,from the perspective of market operation,the cancella-tion of short selling uptick rules leads to an increase in market trading volume and liquidity indices.However,it also significantly raises market volatility,widens bid-ask spreads,and causes a notable deterioration in pricing efficiency.Thirdly,when examining different stock categories,the study finds that after canceling short selling uptick rules,mid-cap stock volatility and pricing efficiency deteriorate more severely,while liquidity in small and mid-cap stocks increases significantly.Nevertheless,due to the malicious speculation by aggressive short sellers,there is also a risk of widening bid-ask spreads.Therefore,while canceling uptick rules may stimulate short selling market activity,it still has substantial negative consequences.At the same time,the short selling uptick rules in the A-share market prevent the impact of short selling forces on the market,reduce avenues for price manipulation,and inhibit further downward pres-sure on stock prices during bear markets,thereby mitigating panic sentiment.As one of the measures to stabilize the market and curb volatility,the establishment of short selling uptick rules is deemed to be reasonable.There-fore,considering risk control,this paper recommends maintaining the status quo of the A-share short selling uptick rules.
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