Constraining Short-sell And Stabilizing The Market Under The Perspective Of Stock Market Crash

In 2015,there is a rare stock market crash happened in China A-share Market,the Shanghai Composite Index fell down from 5178.19 to 2850.37 in just two months.This stock market crash has strong destructive and great influence.For stabilize the market,government took many measure,included constrained short-sell.But dose constrained short-sell in 2015 can stabilize the market? There is no definite conclusion.In this paper,we study the short-sell constraint that imposed by government in 2015,based on constraining short of stock index futures and constraining short of securities margin trading this two events,use the theory of divergence of opinion,herd effects,over-reaction and under-reaction to make the theoretical analysis of the constraining short-sell,building the fix effect model and difference-in-difference model,analyze how constraining short-sell in 2015 affect the liquidity and volatility of market,discuss can constraining short-sell play a stable role in the market.By comparing the effects of the two policies,this paper analyzes whether the effect of constraining short-sell on stabilize the market is different at different times.The descriptive statistics shows when the government constrained short of stock index futures,the market liquidity decreased and the volatility increased;when constrained short of securities margin trading,the market liquidity and volatility decreased at the same time.The empirical result show that constraining short of stock index futures detrimental for liquidity of market and increase volatility of market,constraint cannot make the market stable.Constraining short of securities margin trading also detrimental for liquidity of market,but reduce volatility of market,constraint can make the market stable in some way.Our study found that in the early term,constraining short of index futures is not conducive to market stability;and in the medium term,constraining short of securities margin trading is conducive to market stability.At the beginning of stock market crash,the market sentiment is panic,investors are very sensitive to the news,the introduction of constraining short-sell policy will exacerbate the market pessimism,trigger panic selling,is not conducive to stabilize the market.In the medium term,the market is relatively calm relative to the beginning of the stock market crash.Investors began to appear different views,in the market to maintain a cautious attitude,to take a prudent approach to trade.At this time investors arevery insensitive to the information,the introduction of constraining short-sell policy did not give investors excessive stimulation.In this case,constraining short-sell can accurate combat short-sell risk,decreased volatility of the market,this can stabilize the market to a certain extent.Therefore,when the stock market crash happened,the government should not blindly constrain short-sell,but should be based on the actual situation of the market choose the action,select the appropriate measures to play the desired effect of the policy.