Xinyun Chen、Yan Liu、Tao Zeng：Does the T+1 Rule Really Reduce Speculation? Evidence from Chinese Stock Index ETF

【Abstract】Stock trading in China is subject to the T+1 rule, which requires investors to hold the asset for at least one day before selling. This rule was initially imposed in the mid 1990's, replacing the previous T+0 rule, to prevent excessive speculative trading. Given the considerable changes of China's financial market over the past 20 years, it is controversial whether the T+1 rule should be replaced by the T+0 rule in today's market. In this paper, we empirically test the effect of the T+1 rule on market speculation. To identify potentially different impacts of the T+1 and T+0 rule, we choose a unique pair of CSI 300 ETFs, one subject to the T+1 rule while the other to theT+0 rule. Based on an error correction model, we develop an empirical methodology to test intraday speculation in the ETF price. Our empirical results show that, at least under current market condition, the T+1 rule reduces the price efficiency and spurs more speculation when the market liquidity is not in a shortage.

【Keywords】Trading rules；T+1；T+0；Speculation；CSI 300 ETF

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