This study investigates whether short selling and margin trading influence on stock price randomness in the Korean stock market. If the market is efficient, individual stock prices will take random walk, because stock prices reflect new information, which comes randomly. We examined whether short selling and margin trading affect the price randomness of individual stocks in the Korean market. Using Lo – MacKinlay variance ratio, we test the random walk process of individual stocks. Our result indicates that short selling hurts share price randomness, but margin trading does not.​

Keywords: short selling, margin trading, random walk, price efficiency