The Impact of Short Selling on the Price-Volume Relationship: Evidence from Hong Kong

This paper considers the relationship between traded volume and volatility allowing for the impact of short sales. The evidence supports a nonlinear, bidirectional relationship between volume and volatility. Short selling is found to have a significant impact on this relationship, and our results suggest (i) that the Hong Kong market displays greater volatility following a period of short selling and (ii) that asymmetric responses to positive and negative innovations to returns appear to be exacerbated by short selling.