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Does news travel slowly before a market crash? The role of margin traders

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  • Li Qian
  • Mingsheng Li
  • Yan Li

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.

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  • Li Qian & Mingsheng Li & Yan Li, 2020. "Does news travel slowly before a market crash? The role of margin traders," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 3065-3101, September.
    • Handle: RePEc:bla:acctfi:v:60:y:2020:i:3:p:3065-3101
    DOI: 10.1111/acfi.12419
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