Margin Trading and Securities Lending, Investor Sentiments and the Volatility of Chinese Securities Market
- 1 College of Economics, Jinan University, Guangzhou, China
Abstract
Whether margin trading and securities lending transaction help to stabilize the stock market or amplify stock market volatility is a topic that has long been a concern. Based on the perspective of volatility asymmetry, we use event analysis and ARMA-EGARCH-M model to empirically test whether China’s margin trading and securities lending transactions can boost the bull market and aggravate the price decline in bear market. The empirical results show that the volatility of China’s stock market was asymmetric. Margin trading transactions reduced the stock market volatility while securities lending transactions increased the stock market volatility. Since the trading volume of margin trading was much larger than the trading volume of securities lending, the stock market volatility decreased since the launch of margin trading and securities lending mechanism.
- De Long, J.B., Shleifer, A., Summers, L.H. and Waldmann, R.J. (1990) Noise Trader Risk in Financial Markets. Journal of Political Economy, 98, 703-738. https://doi.org/10.1086/261703
- Li, K., Xu, L. and Zhu, W. (2014) Short-Sale Constrains and Stock Mispricing: The Evidence from the Margin Transactions Institution. Journal of Economic Research, 10, 166-178.
- Li, Z., Du, S. and Lin, B. (2015) Short Selling and Stock Price Stability: Natural Experiments from China’s Margin Financing Market. Journal of Financial Research, 6, 173-188.
- Xiao, H. and Kong, A. (2014) Study on the Influence Mechanism of Margin Financing on Stock Price Traits Fluctuation: Test Based on Double Difference Model. Management World, 8, 30-43.
- Chen, H. and Fan, Y. (2015) Financing and Margin Trading System vs. China Stock Market Volatility: An Analysis Based on Panel Data Policy Evaluation Method. Journal of Financial Research, 6, 159-172.
- Xu, H. and Chen, X. (2012) Does China’s Launch of Margin Financing and Securities Lending Transactions Promote the Pricing Efficiency of the Underlying Stocks? Management World, 5, 52-61.
- Li, F. (2017) Does Margin Trading Aggravate Stock Market Fluctuation? From the Perspective of Asymmetric Volatility. Journal of Financial Research, 2, 147-162.
- Lin, X., Yi, F. and Chen, C. (2016) The Effect of Marginal and Financing Trading: A Study Based on the Double Difference Model. Investment Research, 4, 74-86.
- Zhu, J. and Fang, J. (2016) Chinese-style Margin Financing System Arrangement and Deterioration of Stock Price Crash Risk. Economic Research Journal, 5, 143-158.
- Black, F. (1976) Studies of Stock Price Volatility Changes. Proceedings of the 1976 Meetings of the Business and Economics Statistics Section, American Statistical Association, Washington DC, 177-181.
- French, K.R., Schwert, G.W. and Stambaugh, R.F. (1987) Expected Stock Returns and Volatility. Journal of Financial Economics, 19, 3-29. https://doi.org/10.1016/0304-405X(87)90026-2
- Nelson, D.B. (1991) Conditional Heteroskedasticity in Asset Returns: A New Approach. Econometrica, 59, 347-370. https://doi.org/10.2307/2938260
- Engle, R.F. and Ng, V.K. (1993) Measuring and Testing the Impact of News on Volatility. The Journal of Finance, 48, 1749-1778. https://doi.org/10.1111/j.1540-6261.1993.tb05127.x