The Impact Of Media Sentiment On Margin Trading And Short Selling

This dissertation explores the effects of news and social media sentiment on margin trading and short selling behavior in China.The country’s margin financing and securities lending system has undergone rapid development since 2010.However,margin trading has led to high leverage in investors’ portfolios,while short selling has not been used enough for hedging purposes.Furthermore,given the significant presence of individual investors in the Chinese market,investor sentiment can greatly impact market volatility and security returns.While news and social media can provide investors with valuable information and reduce information asymmetry,they can also influence investor sentiment.The sentiment embedded in news articles and social media messages can cause non-fundamental demand shocks,leading to increased margin trading or short selling.In turn,arbitrageurs may capitalize on temporary mispricing.This dissertation focuses on investors’ margin trading and short selling behavior for the CSI 300 constituent stocks between January 1,2011,and December31,2021.The results reveal that higher media sentiment leads to increased financing and decreased short selling,while lower media sentiment leads to the opposite.The primary influence of media sentiment is on investors and speculators rather than arbitrageurs,who face limits to arbitrage.Additionally,negative media sentiment has a more significant impact on margin trading and short selling than positive sentiment.Furthermore,negative media sentiment has a greater impact when investor sentiment at the market level is high than when it is low.Finally,margin trading and short selling has a negative impact on stock price volatility,but the moderating effect of media sentiment is positive.