Empirical Research Of The Margin Trading’s Effect On The Price Informativeness And Yield Distribution Characteristics

As an important security trading mechanism, margin trading has been running for many years in the mature stock markets of Europe and North America. With the characteristic of leveraged trading and short selling, margin trading has gradually developed into an indispensable part of the mature security markets’ trading mechanism.China is an emerging market country, its development of the security market started late, and there existed long-standing short-sale constraints before until the launch of margin trading in the early2010which eased short-sale constraints to some extent. After the expansion of margin trading underlying stocks of Shanghai and Shenzhen stock exchange at end of2011, the short-sale constraints has been further eased.According to Miller’s (1977) study, short-sale constraints will result in the ineffective reflection of all relevant negative information, causing the share price tends to be overpriced. In other word, short-sell constraints reduce stock’s price informativeness, weakening the pricing efficiency of stock market. So, the easing of short-sell constraints should be able to increase stock’s price informativeness and improve the pricing efficiency of stock price.In this paper, In order to find the effect of margin trading on the underlying securities, I use the event of launching margin trading to make a comparative study on the underlying securities’price informativeness and pricing efficiency of the markets before and after the event.In this paper, I Comprehensively use the hypothesis test method、 difference-in-difference model and grouping research method to study the effect of margin trading on the underlying securities’ price informativeness and distributional characteristcs of return. And I basically find the following three:(1)%Overall, in security market of china, the margin trading didn’t significantly increase stock’s price informativeness, and the improvement of distributional characteristcs of return is not significant as well, only reduce the stock price volatility.(2)、Base on whether listed in the stock exchange of Hong Kong at the same time、market size、turnover rate、PE、market price、annual return,I group the underlying securities in six different groups for empirical research. I find that margin trading indeed has significant structural effect on the underlying stocks.(3)、By group study, I find the significant structural effects of margin trading mainly exist in terms of increase the price informativeness. And there is not enough evidence to show that margin trading improved the distributional characteristcs of underlying securities’return except their price volatility.The main contribution of this paper is to enrich the relative literature. Currently, the study about how the Margin trading affects the Price informativeness and Return distribution is not much. The previous literatures at home and abroad usually use a proxy variable of short-selling constraint to conduct the study. This article makes use of the margin trading business from scratch and uses this rare natural experiment opportunity, using a market transaction data with higher timeliness to conduct the empirical research, the conclusions are more reliable, and enriched the field of domestic corresponding literature. In addition, this paper uses a Difference-in-difference model which can figure out the net influence caused by the Margin trading to the underlying securities more effectively. Meanwhile, the paper combined the grouping methods with the Difference-in-difference model to study the net impact of the margin trading generated to the underlying securities. From the structure of the study, the conclusions are more complete and reliable.