Short Selling Mechanism On Herd Effects Of A-Share Market

Herd behavior is one of market anomalies of financial market,which means investment strategy of investors completely rely on public voice and other strategic investors.There is an obvious herd behavior in China's securities market,on the one hand,due to immature investors,on the other hand,due to the imperfect disclosure of information in the securities market,frequent policy intervention,lack of trading tools,etc.On the basis of literature review,it is found that lacking of short selling is one of the reasons for the herd effect in China's securities market.However,the literature is silent about short-sale's effect on investors' trading behavior and,in particular,the possibility of generating herding behavior.Therefore,this paper attempts to explore the impact of short selling on the herd behavior of securities market through empirical analysis.With the development of the short selling market,it provides a large amount of data for the empirical study.This paper uses CSAD model to conduct empirical tests on herd behavior of stocks that is allowed short selling and stocks which is not in the stage of bull market,bear market,and steady market.To investigate whether short selling may reduce herd effect,this paper contrast the difference of short selling stocks' herd effect and the stock which is not allowed.In order to enhance the robustness of the results,this paper construct two similar stock groups in market capitalization,trading volume and market sensitivity,and found obvious herd effect only in bear market and stronger herding in short sales stocks.This paper further divides the stocks according to the level of short selling activity and found that more active short sales may have slight herd effect.Based on the results of empirical results,this paper argues that short selling can weaken the herding effect of China's securities market.And properly active short selling trading stocks reflects slight herd effect.The last part of paper,combined with the empirical conclusions,put forward some advices that about promote the development of short selling mechanism in our country.