Abstract
With the background of China’s Margin Trading pilot, the paper studies the effect of short selling mechanism on investors’ positive feedback trading behavior. The research results show that positive feedback trading behavior exists in Chinese stock market, and the launching of the short selling mechanism inhibits effectively the positive feedback trading behavior. Investors can show their pessimism towards the stock price by going short selling, thus the stock price can return quickly to the basic value. At the same time, leverage effect consists in the stock market, namely that investors react more strongly to bad news than to good news. After the implement of margin trading and short selling mechanism, the risk hedging mechanism increases, and investors in the market generally tend to react rationally to good news and bad news.
Highlights
On March 31, 2010, the A-share market launched the margin trading pilot, so that the credit transactions that were a basic trading mechanism in capital market formally introduced into China
This paper attempts to carry out an empirical research to contrast the effect of the implementation of short selling on positive feedback trading behavior of investors before and after the implement of the short selling mechanism, hoping to get useful conclusions
Liao and Yang (2005) studied the relationship between the short selling and stock prices with the data during August 1998 and February 2004 in Taiwan stock market, and the results showed that there is a long-term stable co-integration relationship between short selling transactions and weighted stock index [8]
Summary
On March 31, 2010, the A-share market launched the margin trading pilot, so that the credit transactions that were a basic trading mechanism in capital market formally introduced into China This filled a long time vacancy that lacked of short selling mechanism in securities market. (2016) Research on the Impact of Short Selling Mechanism on Investors’ Positive Feedback Trading Behavior. This paper attempts to carry out an empirical research to contrast the effect of the implementation of short selling on positive feedback trading behavior of investors before and after the implement of the short selling mechanism, hoping to get useful conclusions. Few study revealed the effect of the implementation of margin trading on the behavior of investors This is the primary coverage of the paper. By constructing the positive feedback trading model test, the empirical results analyzed the effect of margin trading on the investor behavior.
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