Narrow Results

This study draws on classical conditioning to explain how investors react to short sale-related measures. Our results reveal that measures related to the capital cost of short sellers cause a conditioned response among investors. This explains how investors actually perceive and relate to short sale-related measures and shows that many measures fail to achieve the expected results. Additionally, the conditioned response to measures related to the capital cost of short sellers reveals investor sentiment about the adjustment of short sale margin requirements.

This study applies self-developed models using standardized regression analysis to investigate the learning behavior associated with investor sentiment and psychological pitfalls during the 2007–2009 Global Financial Crisis. The empirical results, which draw on reinforcement learning and classical conditioning perspectives, reveal asymmetric reinforcement learning behavior because investors report a higher tendency to avoid past unfavorable outcomes rather than repeat past favorable outcomes. The evidence also supports the conditioned response of psychological pitfalls to the Taiwanese government’s stimulus measures during 2007–2009; however, no concrete evidence supports the conditioned response of investor sentiment.