Abstract
ABSTRACT Using data from the Chinese stock market from 2000–2023, we first re-examine the Pessimistic-Minus-Optimistic (PMO) effect induced by the abnormal turnover rates in the A-share market. Next, we construct a crowding index of the PMO factor. And the findings show that the crowding index of the PMO factor could have a significant negative impact on the future PMO returns and vice versa, considering the realistic strict short-selling constraint. These mutual influences are short-term and will quickly decay. However, we do not observe a similar pattern in the ideal context of no restrictions on short-selling. This implies that relaxing restrictions in the stock market is beneficial for reducing mispricing errors in China to some extent.
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