A Research On The Irrational Behavior Of Individual Investors In Margin Trading

In 2008,the financial crisis happened in the US,and the economic and financial markets in the United States were hit hard and spread rapidly all over the world.Other countries' economic and financial markets were also affected to varying degrees.In this financial crisis,the global stock market has declined sharply,and the irrational behavior of investors in the stock market has helped to accelerate the decline of the securities market.On the other hand,the crisis also attributed to the large-scale development of leveraged financial products such as securities margin trading,options,futures,CDOand CDS.In the second half of 2015,the stock market crash in China was on account of the disorderly development of highly leveraged products,including securities margin trading,offsite allocation,etc.China's securities margin trading showed problems that the financing balance fluctuated greatly with the market quotations,and the business of securities margin trading presented unbalanced development and the investors' cognition needs to be further enhanced.At the same time,in securities trading,investors' irrational behavior,such as fling away a sprat to catch a herring,blindly following the trend and overreaction,also played a role in boosting the stock market volatility.So,for the healthy and orderly development of China's securities market,we must find solutions for the problems encountered in the development of margin trading,and standardize the development of margin trading.Individual investors are the important participators in China's securities margin trading,therefore,to analyze the irrational behaviors of individual investors is of great significance.The focus of academic research always lies in the impact of securities margin trading on the financial market and the irrational behavior of investors in the common securities trading.Most scholars at home and abroad have found through researches that securities margin trading has a significant impact on the liquidity of financial market,pricing efficiency and stability.In addition,the scholars also discovered that investors generally had irrational behaviors in common securities transactions,including the overconfidence,overtrading,disposition effect and herding effect of them.However,there is a relative lack of research on the irrational behaviors of investors in the securities margin trading.This thesis studies on the issue with the view to discuss the irrational behaviors of individual investors,involving their preferences insecurities margin trading,overconfidence,overtrading,disposition effect and herding effect,as well as the impact of such behaviors.This thesis studies the individual investors' irrational behaviors in margin trading guided by behavioral financial theory,researching the basic information,transaction data,and position data of investors of a Chinese securities enterprise.The following three aspects is its main focus:First,investors are divided into three groups according to whether or not they participate in securities margin trading,including investors of securities margin trading,investors being able to meet the condition of securities margin trading but not participate in it and investors not being able to meet the condition of securities margin trading.The thesis makes statistical analysis of the characteristics of these three groups of investors in terms of population statistics,level of wealth,transaction behaviors and other aspects.Then,based on the characteristics of the above three aspects of investors,it conducts probability measurement research on the factors affecting investors to participate in securities margin trading through the logistic model.Second,this thesis makes empirical analysis on investors' common irrational behaviors in securities margin trading by studying investors' transaction data and position data in credit securities accounts.It analyzes the investors' transaction preference with regard to market value,book-to-market ratio and heterogeneity fluctuations;moreover,the thesis discusses investors' overconfidence from the perspective of their age,gender,investment experience,previous yield,preliminary return rate,leverage ratio and fluctuation rate;it indicates investors' overtrading behaviors comprehensively and from the gender perspective as well;it also analyzes the disposition effect of investors through gender differences,time characteristics,also in an all-round manner;in addition,it studies the herding effect,buying herding effect and selling herding effect.Third,the thesis makes a horizontal comparison on common irrational behaviors of investors both participate in or not participate in securities margin trading through panel data model,involving transaction preference,overconfidence,overtrading,disposition effect and herding effect;and it makes vertical comparison on their such common irrational behaviors before and after participating in securities margin trading through panel data model;besides,it analyzes the impact of securities margin trading on the above common irrational behaviors through difference-in-differences regression model.It has drawn the following conclusions through relevant researches:First,the logistic model is used to study the influence factors of investors'participation in margin trading,we have found that the probability of investors participating in securities margin trading is in direct proportion to their age;male investors are more likely to participate in securities margin trading;investors with high education background have a greater possibility to be involved in the securities margin trading,so do the individuals,employees in administrative units,enterprises and public institutions,and science,education,and health professionals;the larger total assets and higher turnover rate of investors,the greater probability for them to participate in securities margin trading;Second,by analyzing the traders' irrational behavior in securities margin trading,we found that investors prefer to trade stocks with high market value,high book value ratio and low fluctuations of heterogeneity in order to generate more funds and securities for leverage trading,thus gaining more benefits.As Chinese investors of securities margin trading lack of margin securities knowledge,are not good at using margin related investment strategies,lack understanding of their irrational behavior,are not mature enough in investment philosophy,knowledge and skills,generally lacking rational investment concepts and long-term investment awareness.These factors make them still behave irrationally,like their overconfidence,overtrading,disposition effect and herding effect.Thirdly,the thesis makes empirical analysis the impact of investors' irrational behaviors in securities margin trading by establishing panel data model and the difference-in-differences model.We also find that investors have a significant preference for stocks with low market value,low book value ratio and high fluctuations of heterogeneity in common securities transaction,while after involving in securities margin trading,investors tend to turn to stocks with high market value,high book value ratio and low fluctuations of heterogeneity;margin trading significantly increased the overconfidence of investors;margin trading significantly reduced the degree of overtrading of investors;margin trading significantly increased the degree of investors' disposition effect,that is,to sell more profitable stocks and continue to hold loss stocks;margin trading has significantly reduced the herding effect of investors,however,the herding effect of buy-in is more serious and the herding effect of sales declines.The irrational behavior of investors will not only directly cause property loss that rational investment and the sense of long-term investment cannot be established,but also severely limit their choices in the stock market,which may lead to the decline of market stability.Based on these research results,we make the following recommendations to regulators,securities firms and investors:First,regulators should standardize the information disclosure system of stock exchanges,put an end to "insider trading",regulate trading rules for securities margin trading,strengthen the supervision of securities companies,develop innovative products suitable for medium and small investors and further improve the refinancing mechanism.Second,securities companies should enhance investor education,fully disclose the risks of securities margin trading to investors,strengthen the risk prevention mechanism in the margin trading,strengthen the training of employees' comprehensive quality of securities companies and do businesses in accordance with the rules.Third,investors should strengthen the learning of securities knowledge,especially the difference between general securities trading and margin trading,and strengthen the learning of related trading strategies of margin trading,enhance self-cognition to avoid problems in the investment,establish a rational decision-making process of investment and gradually establishthe concept of asset allocation.Compared with the previous studies,the innovation of this thesis lies in:First,academic innovation.Domestic scholars have done a lot of research on securities margin trading,but most of them focus on its influenceon the entire securities marketor underlying securities,such as the impact of securities margin trading on liquidity,volatility and pricing efficiency of market and underlying securities.The domestic scholars' research on the irrational behaviors of investorsmainly lies in their irrational behaviors in common securities transactions,but there is basically no such research in securities margin trading.As investors make transactions by leverage tools,their cognitive bias,investment behaviors,irrational behavior and other aspects may be changed.This thesis makes in-depth analysis on the investors' irrational behaviors in securities margin trading and discusses its impact on such basis.Second,innovations in policy recommendations.Domestic scholars generally analyze the impact of securities margin trading on the market from the macro perspective,and then evaluate the relevant policies of securities margin trading and put forward relevant policy recommendations.However,this thesis analyzes the impact of securities margin trading on investors from the micro perspective and proposes relevant policy recommendations to regulators,securities companies and investors on such basis.Third,innovation in the conclusion.Most scholars at home and abroad mainly discovered that investors had irrational behaviors such as overconfidence,overtrading,disposition effect and herding effect.On the basis of the difference-in-differences model,this paper finds that margin lending significantly changes the investor's trading preference;margin trading significantly increased the overconfidence of investors;margin trading significantly reduced the degree of overtrading of investors;margin trading significantly increased the degree of investors' disposition effect;margin trading has significantly reduced the herding effect of investors,however;the herding effect of buy-in is more serious and the herding effect of sales declines.Its academic value is to enrich the research connotations,and to further verify behavioral financial theory through empirical study,while its application value lies in improving the structure of investors in China's securities margin trading,helping investors to avoid irrational behaviors,promoting the further expansion of securities margin trading of securities companies and revising the laws and regulations of regulators and securities companies,thus providing suggestions for the orderly and stable development of securities margin trading.