Margin Trading,Institutional Ownership And Stock Idiosyncratic Volatility

Margin trading mechanism and the growth of institutional investors are regarded as the two most important aspects of building a mature capital market and restraining excessive stock volatility.However,the recent abnormal fluctuations in the stock market(especially the large fluctuations in the GEM stocks)are contrary to this view.The GEM stock has a strong Risk Spillover and high idiosyncratic volatility risk characteristics.Idiosyncratic volatility is often used as a valid measure of firm characteristics information,share price information,capital allocation efficiency,investment decision-making quality and even capital market efficiency in stock returns.In China's A-share market,due to the imperfection of institutional and trading mechanisms,the idiosyncratic volatility in its stock market is greater than that of developed countries and is more likely to cause the overall market risk.Based on the margin trading,this paper first uses propensity score matching method to analyze the relationship between margin trading and idiosyncratic volatility under different market conditions,and puts forward the possible causes of different outcomes.Then,by using the quantile regression method and portfolio analysis method,this paper makes a thorough investigation on whether the institutional investors use the margin trading to evade risk or increase the idiosyncratic volatility by pursuing the maximization of risk return.Finally,based on the conclusion,the paper raises policy suggestions which are meaningful for regulators to formulate appropriate policies.Study results show that in the period of stable market,institutional investors prefer to buy margin of the underlying shares and showed risk seeking behavior,this stage the stock idiosyncratic volatility and firm level factors;at the beginning of the abnormal fluctuations and institutional investors strong "Baotuan heating" behavior caused by rising stock idiosyncratic volatility.Market risk accumulation period,the institutional investors cut positions increase the idiosyncratic volatility,and the relationship between the two shows an inverted "U"-shaped.