Research On The Effects Of Short Selling Restrictions On Investor Behaviors Of Herding And Overreaction

As an important part of the securities market, short selling plays an irreplaceable role on the discovery of stock price, but whether short sale will stabilize the stock market or will aggravate the volatility of the market, different people hold different views. Few were studied based on the perspective of investor behavior. This paper reinvestigate the impact of Uptick rule in a new area. It try to address the impact of short constrain on the investor behavior bias. Specifically, this paper mainly study the influence of short-selling restrictions on investors behaviors of herding and overreaction to explain the effects of short selling restrictions on securities market.In order to study the effect of short selling restrictions on the herd behavior of investors, this paper uses the CSAD model to test whether the herding behavior of the investors is different before and after the event. Due to herding behavior can lead the relationship between price and volume changes, the model is constructs by the relationship between them. Through the price-volume relationship test results,whether the herding effect conclusion is correct can be verified. In order to study the effect of short-selling restrictions for investors overreaction, this paper uses the winner-loser effect model for inspection and analysis whether there is overreaction behavior after the event. Due to overreaction will increase stock returns fluctuation,this paper constructs the yield fluctuation model. Through the fluctuation test results, whether the conclusion of overreaction is correct can be confirmed.This paper generated both the data of three months before and after the announcement and the implementation of 201 regulations into the above model, the results are that both the announcement and the implementation of Rule 201 cause herding behavior and overreaction. Therefore, this paper argues that the existence of short-selling restrictions reduces the market efficiency, and combined with the empirical conclusions it put forward some suggestions to promote the development of short selling mechanism in our country.