Intermarket Impacts of the Removal of Short-Sale Constraints—From the View of Market Integration

Abstract

Abstract:The Securities and Exchange Commission in the United States eliminated the short-sale price test restrictions on July 6, 2007. The purpose of this study is to examine the intermarket effects of the US' removal of short sale constraints on underlying stocks of American Depositary Receipts in three Asia-Pacific markets-China Mainland, Chinese Taipei and Hong Kong. The empirical findings show that after the removal, price qualities of the underlying stocks seem to deteriorate, implying order flow migrations from the three markets to the US market. The results also provide evidence against the integration of the three markets with the US market during the sample period.