| Margin trading was introduced to China as long and short mechanism in March 2010 in order to improve the stock market.Theoretically,the margin trading can activate market transaction,promote the the stock price discovery function,enhance the price efficiency and improve the function of the capital market.But in reality,we should take the actual situation of the stock market and the current situation of margin market into account.Chinese stock market is still in the early stages of development.The market mechanism is not perfect and the small and medium-sized investors account for the larger,lacking rational investors.Since its inception,the margin trading business is seriously imbalanced.Financing accounts for more than 99%of the total amount of margin trading and margin business is very weak.In the credit transaction accounts,individual investors accounted for more than 99%,so institutional investors accounted for less than 1%.This has a negative impact on the normal functioning of margin trading business.When the Chinese stock market turns from the bear market to bull market,investors become optimistic about the stock market,so investors trading strategy transfer from conservative to radical.The margin mechanism provides a long channel for the investors,pushing the price higher.When the China stock market turn from the bull market to bear market,due to imbalanced development of Chinese margin trading,the short selling business lack of vitality.Although investors are bearish about the market,the scale of financing is still much higher than that of short selling,pushing up the underlying stock price.The research sample of the paper includes the first batch of margining stocks and having not been removed during the sample period and the latest batch of margining stocks joining on December 2016 and normally trading during the sample period.The samples periods are from October 2013 to December 2014,meaning the bear market to bull market and from February 2016 to May 2016,meaning the bull market to bear market,respectively.The paper use the DID method to analyze the relationship between margin trading and stock returns and excess returns.The empirical results show that whether in a bear market or a bull market,the existence of margin trading mechanism pushes up the margin of the underlying stock price.Then the instrumental variable method finds that financing is an important reason to push the price of the margin stock higher.Although the scale of short selling has a negative effect on the stock return rate,the size of margin trading is far smaller than the size of the financing.As a result,margin trading makes the price of the underlying stock relatively higher compared to the non-target stocks.This paper also refers to the stock of discounted cash flow valuation model,using the difference-in-difference method to study the sample.The study finds that the profitability,growth and risk management are unable to explain the high price of the margin target stock after the market transition,indicating that the stock fundamentals are not the reason for the higher price of the underlying stock prices.Finally,the paper puts forward to some policy suggestions:strengthen the regulatory supervision,improve the education of investor and enrich source of securities. |
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