An Empirical Study On The Relationship Of The Margin Trading And The Idiosyncratic Volatility

Margin trading mechanism provides investors more various trading methods, which is regarded as necessarytrading and pricing mechanismin many matured overseas capital market. Some reaches insisted that limitingmargin trading resulted in larger price volatility. But, the effects of relaxing the restrictions of short-selling on idiosyncratic volatility and on stock price informativeness remain to be discussed. And the maturity of security market has remarkable impact on idiosyncratic volatility of stock price. China initiated the first group of margin trading objects in March, 2010. After enlargement of experimental unit in different categories, margin trading became an important component of domestic stock market. Owing to the relatively short time period of domestic margin trading in experimental unit, there are comparatively less relative researches. Some research concluded that margin trading increased the pricing efficiency in domestic stock market to some degree. Based on it, this article attempts to explore the following three aspects with empirical study method: 1) the influence of Chinese margin trading mechanism onidiosyncratic volatility of stock price; 2)the difference between the influence of market environment on the relation between margin trading and idiosyncratic volatility, and the environment requirement of margin trading mechanism in domestic capital market, with divided the trading period into different group with the market environment; 3)the difference between the impact of information transparency on the relation between margin trading and idiosyncratic volatility, and the effect to the margin trading from the degree of information transparency, with divided listed companies into different group with the degree of earnings management.This article first analyzed the historical reforms of domestic margin trading system and to prove its positive role plays in domestic market. Then through reading domestic and foreign research on the relation between margin trading and stock price volatility, I collected articles concerning short-selling mechanism and pricing efficiency, and summarized the measurement methods of stock price informativeness, and relative research on relations among investors sentiment, earnings information quality and stock price idiosyncratic volatility. Base on these, the research hypothesizes were raised: 1) margin trading mechanism can contribute to the increase of the stock price idiosyncratic volatility; 2) the market trend and investors sentiment can affect the influence of margin trading on stock price idiosyncratic volatility; 3) the lower degree of Information transparency, or the higher degree of earnings management, the less stock price idiosyncratic volatility can be.After several empirical experiments in natural or artificial conditions, I made the following discovery. First of all, there was remarkable differences in idiosyncratic volatility between the margin trading objects and non-margin trading object, which prove that the margin trading mechanism could raise the stock price idiosyncratic volatility. In addition, the influence of margin trading on stock price idiosyncratic volatility is more remarkable when the market trend is rising and the investors sentiment is high, which mainly came from financing trading. Besides, the degree of earnings management could affect the idiosyncratic volatility of margin trading object, which accrual earnings management could intensify the restraint effect of financing trading on idiosyncratic volatility. The robustness test revealed that the above empirical analysis have highly robustness, including indexes measurement, variants expression formulation and grouping experiments. Finally, based on the results of empirical study, this article raised constrictive suggestions, including the gradual increase the quantity of margin trading objects, proper decrease of margin trading investos entry standard and of margin trading cost and so on.