Does News Travel Slowly Before a Market Crash? The Role of Margin Traders

37 Pages Posted: 6 Oct 2020

See all articles by Li Qian

Li Qian

Jiangxi University of Finance and Economics

Mingsheng Li

Bowling Green State University - College of Business Administration

Yan Li

Southwestern University of Finance and Economics (SWUFE) - School of Accounting

Date Written: September 1, 2020

Abstract

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.

Keywords: Investor overconfidence and attention, Market efficiency, Price delay, Margin trade, Chinese markets

Suggested Citation

Qian, Li and Li, Mingsheng and Li, Yan, Does News Travel Slowly Before a Market Crash? The Role of Margin Traders (September 1, 2020). Accounting & Finance, Vol. 60, Issue 3, pp. 3065-3101, 2020, Available at SSRN: https://ssrn.com/abstract=3704331 or http://dx.doi.org/10.1111/acfi.12419

Li Qian

Jiangxi University of Finance and Economics

South Lushan Road
Nanchang, Jiangxi 330013
China

Mingsheng Li (Contact Author)

Bowling Green State University - College of Business Administration ( email )

Bowling Green, OH 43403
United States

Yan Li

Southwestern University of Finance and Economics (SWUFE) - School of Accounting ( email )

55 Guanghuacun St
Sichuan, 610072
China

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