| Since Shanghai Stock Exchange and Shenzhen Stock Exchange announced the official opening of the margin trading system on March 31,2010, they began to accept the declaration of margin trading by the pilot members, marking the official launch of Chinese margin trading business. The margin trading business has maintained a strong momentum of development with a rapid growth of digital indicators since the opening. Along with the rapid development of margin trading business, market regulators and the academic community have concerned several questions, such like whether the margin trading business has the stock price discovery function, whether can direct the deviated price of stocks gradually go back to its value, and whether the existing regulations is conducive to the healthy development of margin trading business. Because Chinese security market phased compared with European and the United States', let alone the opening of margin trading business, the existing experience of European and American markets cannot completely set into Chinese securities market. If apply it mechanically, it will make a bad effect. And there is not a complete conclusive about these questions, so it makes sense to use Chinese data studying Chinese securities market for improving stock pricing efficiency. The conclusion can be a real guiding role to regulators and market participants.This paper demonstrates the stock pricing effect of the margin trading mainly from two perspectives. On the one hand, since stock pricing efficiency depends on whether the stock price is able to reflect all the relevant information, the content and transmission speed of information are of vital importance. In this paper, the goodness of stocks'rate of return on the market's rate of return,R-, represents the extent of information expressing, and the correlation between stocks'rate of return and the market's rate of return in the last week, p, represents the transmission speed of information. When there is short sale constraints, in the decline period of market, investors cannot express their bearish expectation through shorting stocks, so the stock price reflects more market level, but little negative private information, which will lead to a higher R2-. And there is not buy limit generally, so when the market turns well, the stock price can reflect both the market level information and private level information, which will lead to a lower R2+. Therefore, when the short constraint is removed, R2-will decrease, so will R2Eiff. Similarly, when the market is weak, the stock price cannot response timely, resulting in a higher ?-. In the rise period, stock price can response timely to the market situation through investors'buying stocks, resulting in a lower ?+. Therefore, when there is not short constrain, regardless the market in the decline or rise period, stock price will absorb all the information promptly, and ?- and ?diff will decrease significantly.The paper uses Difference-in-Differences model (DID) to study whether margin trading can improve the extent and speed of information transmission, and so do efficiency of stock pricing. And the paper studies overall stocks and small board and GEM separately.In the overall test, the fifth margin expansion of stocks are regarded as treatment group, and the constituent stocks in the CSI 800 index, which are not subject of margin stock, are regarded as control group. The result shows that after removing short constraints, the degree of extent of information transmission doesn't improve at all, but decreases slightly. The speed of information transmission is indeed a significant increase. The result indicates that the overall effect of margin trading on stock pricing efficiency improvement is still relatively limited, and the stock price still cannot reflect all the information both of the market level and the private level. The possible reason may be the imperfect policy system in the Chinese securities market. When presented a new trading rule, market participants will hold a wait-and-see attitude at the beginning. Only when the new rule gradually moves towards the right track, market participants will accept and embrace it, and the rule will play its role. Another reason may be that the test is mixed with all plate of stocks. When the disk is large, the real influence may be difficult to observe.Then the paper only tests the small board and GEM market. Stocks of small board and GEM in the fifth margin expansion are regarded as treatment group, and the constituent stocks in the 400 index, which are not subject of margin stock, are regarded as control group. The result shows that margin trading business has no significant influence on stock pricing efficiency at all. There may be two reasons: On the one hand, it is later for small board and GEM market launching margin trading business than Big-cap board did. So the investors in these two boards have not made the most of this new trade. On the other hand, the market participants are mostly individual investors in the small board and GEM market. So the speculative property is strong and the market is more susceptible to investor sentiment. While the margin trading business can enlarge the investor sentiment, it will have a negative effect on pricing efficiency. Regulators have to formulate special rules for these two markets to guide the margin trading business operating healthily.For the next part, the paper studies the effect of heterogeneous beliefs on stock pricing efficiency in the presence of short selling constraint. This part uses panel regression, selecting the stocks in the fifth margin expansion as sample. The independent variables are heterogeneous beliefs, short sale constraints and other financial variables. And the dependent variables are stock rate of return and average quarterly cumulative yield, respectively. Hypothesis holds that after removes short selling constraint, the pessimistic investors will also participate in the stock trading and so express their pessimistic beliefs, resulting in the decline of stock price and stock rate of return. Thus, the hypothesis is that the short selling constraint and stock rate of return or average quarterly cumulative yield are negatively correlated and heterogeneous beliefs and stock return is also negatively correlated. When only regress short sale constraints and market return rate, the coefficient of short sale constraints is significantly negative, which is consistent with hypothesis. When add other financial indicators and heterogeneous beliefs in the regression, the coefficient of heterogeneous beliefs is significantly positive, which is contrary to hypothesis. Then add the interaction term of the short selling constraint with heterogeneous beliefs, the coefficient of the interaction term is significantly negative, which is consistent with the hypothesis, implying that the interaction term is negatively correlated with stock return rate. The regression results state that in the presence of short sale constraints, the higher level of heterogeneous beliefs, the lower pricing efficiency, and short sales constraints and heterogeneous beliefs is interaction.At last, there are several policy recommendations on the development of margin trading business. Regulators should do differentiated supervision on different classes of stocks and types of investors to optimize the market transaction. It means that "the right products sold the right people", which can improve market operation efficiency. Regulators should also learn from the developed countries about refinancing mechanism to fully connect money market and stock market. Finally, regulators must pay attention to risk prevention by improving risk assessment methods and reducing risk exposure.What is novel about this research is that it divides the small board and the GEM market out alone to study the effect of margin trading business on these stocks. It will help to find out the fact which will hinder the margin trading business smooth development. And regulators will be able to formulate more effective measures to promote the development of business on these two boards. In addition, the paper put heterogeneous beliefs and short sale constraint together to study their effect on stock pricing efficiency and explain the emergence of market anomalies, implying the importance of removing short sale constraints for the healthy development of the securities market. |
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