Premium
Does news travel slowly before a market crash? The role of margin traders
Author(s) -
Qian Li,
Li Mingsheng,
Li Yan
Publication year - 2020
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12419
Subject(s) - overconfidence effect , crash , margin (machine learning) , stock price , monetary economics , business , stock market , affect (linguistics) , economics , financial economics , psychology , geography , context (archaeology) , archaeology , social psychology , paleontology , machine learning , series (stratigraphy) , computer science , biology , programming language , communication
We investigate how investor overconfidence and attention affect market efficiency around the 2015 Chinese stock market crash. We find that the price delay before the crash is about twice the price delay after the crash. Investors become more sensitive to market movements after the crash. Price delays are larger on market down‐days than on up‐days before the crash, but the differences are insignificant between up‐ and down‐days after the crash, indicating that negative information travels slowly only when investors are overconfident. Margin traders follow market trends and intensify the pyramiding and de‐pyramiding effects caused by market sentiment change.