An Empirical Study Of Margin Trading Efficiency In Taiwan Securities Market

Though investors may increase profits through leverage of margin trading in securities market, extra losses may be resulted. From the perspective of the competent authorities, the intension to revive the market and stabilize the security market through margin trading system is obvious; from the perspective of the market, whether the "Fictitious Demand" and "Fictitious Supply" resulted in variation in balance of margin purchasing and short selling and change the market supply-demand relationship will have any impact on regulating the market supply-demand relationship and stabilizing the capital market in securities transaction market is questionable. In addition, in bear market, the competent authorities tend to blame short selling of securities for the price fall and thus restrict the short selling policy, but what we must consider is "if such act would really suppress the fall of stock price?".This study is divided into six intervals based on rise, fall and slow rise of the stock price of Taiwan Stock Exchange (TWSE), the first 200 stocks in Weighted Share Price Index of TWSE trading volume are used as margin trading and short selling samples in the aforementioned six intervals, the market price weighted average is used as source of information to edit stock price, and calculate margin purchasing usage rate, short selling usage rate, Beta of one year stock, turnover rate and trading volume as source of information, Vector Autoregression model (VAR) is used to discuss the relationship of the aforementioned five elements in the intervals so as to examine if the securities credit transaction system could facilitate the stabilization of capital market through the stimulation of market activities and regulation of the market demand and supply. In addition, short selling of securities when stock price below opening price is applicable to 30 stocks of the constituent stocks of Polaris Taiwan Top 50 Tracker Fund which shall be the constituent stocks 2 years prior and after May 16,2005 and shall be the target of margin purchasing and short selling, similarly, VAR is used to compare the change of stock price before and after the policy is put into force to discuss if the short selling of securities when price fluctuate below opening price could suppress the fall of stock price.This study showed us that, to certain extend, the margin trading in securities market is indeed influential to the revival of transaction market, however, margin usage ratio and short selling usage ratio showed little impact on the stock index, that is, credit transaction in securities market bears no capability of regulating stock price of the overall securities market, on the contrary, stock index is influential to margin purchasing and short selling usage ratio; In addition, the short selling restriction when stock price fluctuates below it's opening price not only failed to suppress the fall of stock price, it interfered market transaction mechanism.