Impact Of The Enlargement Of Margin Trading On A-Share Market And Stocks

Since first introduced into China A-share market on March31st2010, the targetstocks of margin trading have been enlarged twice now takes up almost1/4of thetotal listed stocks. The study aims to answer several hot issues of margin trading:firstly, what is the impact of margin trading on the market liquidity and volatility,especially after the expansion of target pool; secondly, what is the different impactdoes short selling and buy on margin have on market; and finally, whether individualstocks react to margin trading the same way as market does.We divide our research horizon into three sub-periods according to the majorchanges of margin trading target and draws following conclusions:On market level, margin trading as a whole increase liquidity and decreasevolatility. Checking buying on margin and short selling separately generates sameresult: both will increase liquidity and decrease volatility.On individual stocks level, we use Propensity Score Matching (PSM) method toconstruct a control group matched to selected margin trading target stocks. Comparingexperiment group and control group, we find that both groups have decreasingvolatility with the development of margin trading. While for liquidity, the two groupshave different results: experiment group decreases while control group increase,which provides a new piece of evidence for “noise trader” theory.