Short Selling Mechanism, Investor Sentiments and Enterprises’ Investment Behaviors

Abstract

Our current short selling mechanism is generally seen as an important external influence mechanism that affects the transmission of information by enterprises and is therefore able to influence the process by which investors make judgments about modifying market buying and selling information through a Bayesian learning process. So, will the introduction of the short selling mechanism impose some pressure on investors to analyze and choose stocks more rationally, and thus influence corporate managers’ investment practices through fluctuations in the stock market? Based on the above analysis, this paper further examines the short selling mechanism and investor sentiments, as well as their effects on enterprises’ investment behaviors. This paper also tries to find out whether investor sentiments can play a regulatory role, and whether the short selling mechanism can work, with the aim of eventually better explaining influences of the short selling mechanism on investment behaviors of enterprises.