The Impact Of Margin Trading On The Calendar Effect Of China’s Stock Markets

Current domestic and foreign literature demonstrated the existence of calendar effect in China’s stock markets. However, the form of calendar effect is different from that of the developed market. The reasons of the existing calendar effect come from many aspects which include trading system arrangements, cost of capital, investors’ psychology, investing behavior and etc. China launched margin trading in the market from March 31,2010. Current literature researched the impact of margin trading on China’s stock market and found its impact on liquidity and volatility.This paper considers that investors’ behavior will be changed by the introduction of margin trading from a behavioral finance perspective. The changes derive from the new investing method and possibility that margin trading provided, which will enable the investors to better express their judgment and expectation on security price.Based on the above considerations, this paper carried out the study on the impact of margin trading on the calendar effect of China’s stock markets. This paper conducted an empirical research by employing a modified GARCH (1,1) model with the data of SSE 50 Index, Shanghai Composite Index and CSI300 Index from June 8,2006 to January 31,2014. The paper analyzed the change of stock market’s yield calendar effect and volatility calendar effect and also interpreted the mechanism behind the change.Empirical results demonstrated that margin trading strengthened the significance on both yield calendar effect and volatility calendar effect. This paper finally analyzed the reasons of change and showed some implications.