Research Of The Effect Of Margin Trading On Stock Pricing

Securities margin trading is a kind of trading system including margin purchase, short sale and financial leverage. Under this trading system, investors can finance to purchase securities or sell short securities from securities firms by paying certain amount of deposit. Theoretically, securities margin trading can raise efficiency of securities pricing and help securities market realize its function of “price determination”.Securities margin trading in foreign securities market has developed for many years and formulating a good trading system. After preparing four years, Chinese securities market started this kind of trading in 31 st March of 2010 formally. Securities margin trading developed quickly after several stages. Development of securities margin trading business can not only meet investors’ diversified trading requirements, but also promote system of securities pricing formation and balance between demand and supply in the whole market.Furthermore, with the development of securities margin trading, more and more scholars start to research its effect. They analyze securities margin trading’s macroscopic effect on securities market, such as whether securities margin trading will decrease volatility of securities market, and increase fluidity of securities market; they also analyze securities margin trading’s effect on target securities—if securities margin trading will drop securities’ excess return. Under the basis of these researches, this paper focus on securities margin trading’s effect on securities pricing(pricing efficiency and return) by the method combined with canonical analysis and empirical analysis.First, from the perspective of theories, this paper introduce background of research and the meaning of choosing this title, and also makes a review of researches nowadays; secondly, this paper explains relating concepts of securities margin trading, including definition, characteristics of securities margin trading, some models of securities trading and meaning of developing securities margin trading; thirdly, after analyzing how securities margin trading has effect on securities pricing, this paper set a target of constituent stocks of CSI 800 index, then research securities margin trading’s effect on efficiency of securities pricing and return; finally, there is a conclusion and some suggestions.In this paper, by empirical study, securities margin trading business can increase efficiency of securities pricing, but this increase only reflect in securities price’s extent of reaction to market information, and it’s not apparent in securities price’s speed of reaction to market information. Furthermore, the effect of securities margin trading on securities’ return is negative, and regression coefficient in CAPM model is-0.1%, regression coefficient in FF three-factors model is-0.06%. the difference between these two coefficients is not huge, which demonstrates that securities margin trading will decrease securities’ return rate. What’s more, this paper verifies Miller’s “stock price overvalue hypothesis”.In general, the securities margin trading can promote the development of China’s securities market trading system, help expand revenue resource of securities companies, and provide new investment ways and investment instruments for investors. Of course, risk management should be stressed, and only by this way, securities margin trading business can develop steadily.