The Impacts that Margin Trading has on the Liquidity of Underlying Stocks: An Empirical Research

Bo ZHANG, Pan LIU, Allen YANG

Abstract


Under the background of increasing margin trading scale in Chinese stock market, a research that its influence on the liquidity of underlying stocks is made in this thesis. Through theoretical analysis, we assume that there exists different expectations inertia model. The influencing process of margin trading on the liquidity of underlying stocks is also deduced to be subdivided as transaction channel, volatility channel and participation channel. By using panel data regression model, the empirical analysis is made to test the actual effect of margin trading system on the liquidity of underlying stocks in Chinese A share market. Empirical results show the transaction channel and volatility channel hypothesis are fully verified in the empirical study of financing transaction system on the liquidity of underlying stocks, while participation channel hypothesis is partly verified. The further analysis based on the view of institution designing and participant structure of the market is also made and the corresponding recommendations are also suggested in this paper.

Keywords


Liquidity of underlying stocks, Margin trading, Expectations inertia


DOI
10.12783/dtcse/mmsta2017/19693

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