A study of the impact of short selling mechanism on the stock price collapse risk

Abstract

Drawing from an extensive review of existing literature, this study investigates the influence of the short selling mechanism (SSM) on x through both theoretical and empirical lenses. It further assesses whether this mechanism can effectively mitigate stock price collapse risk (SPCR). The findings reveal that the SSM has a significant moderating effect on stock price declines, with stability tests for alternative factors affirming the robustness of these results. The study then narrows its focus to listed companies in China, examining the role of the SSM in this specific context. Results indicate that the SSM enhances the information content of stocks, thereby reducing the risk of stock market crashes. Using regression analysis and a mediating role model, the paper empirically explores the relationship between the SSM and SPCR. The conclusions suggest that the SSM can partially reduce the risk of stock market crashes by increasing the information content of stock prices.