The Research On The Effect Of Margin Trading On Stock Price Idiosyncratic Volatility

China's securities market has experienced a number of orderly expansion since it started the trial of margin trading on March 31,2010.The underlying stocks of margin trading increased from the original 90 to the current 950,the scale of margin trading also increased from several million to the current trillion.The implementation of margin trading means that the strict short-selling restrictions in China's stock market have been broken,and from the single market to the current bilateral market.Under the condition of margin trading,on the one hand,the part of the investors who think the stock price is overvalued can take borrowing strategy for short selling,inhibit the rise of the stock price,make stock prices reflect more bad news;On the other hand,another part of the investors who think the stock price is undervalued can also adopt financing strategy to carry out leverage trade to push up the stock price and let the stock price reflect more positive news for the company.Since the implementation of margin trading system in China,the scale of financing and securities lending has been in a state of extremely unbalanced.And the praise and derogation of this system has always been inconsistent.In the first few years,most scholars believed that the system could stabilize the market and deliver more information about the company's characteristics.But after the overall slump of Chinese Stock Market in 2015,the margin trading system has been attacked by scholars.It is considered that the enhancement effect of margin trading is existed significantly.Up to now,the margin trading system can play more positive or negative effects,and it will increase the idiosyncratic volatility or reduce the idiosyncratic volatility,related research did not form a unified conclusion.In traditional financial theory,only systemic risk needs to be compensated.Because non system risk can be offset by holding completely decentralized portfolio,and system risk can not be dispersed.However,in the actual securities market,because of the existence of information asymmetry and "transaction noise",investors can not hold a completely decentralized portfolio,so the non system risk should also be compensated.The idiosyncratic volatility,which represents the trait risk of a company(non system risk),is used by many scholars to study the relationship between trait risk and expected income.Some scholars found that the relationship between the two is positive,that mean the risk in the traditional financial theory needs to be compensated.However,a number of scholars found that there was a negative correlation between the two,that mean the financial anomaly of "idiosyncratic volatility puzzle".The two different views have aroused wide discussion in academic circles,but so far,no unified conclusion has been reached.Then,is there a real "idiosyncratic volatility puzzle" in China's securities market,and whether our country's margin trading system can affect the volatility of stock prices and the "idiosyncratic volatility puzzle" ?In this paper,the fourth expansion of margin trading in China is the time node on September 22,2014,and the research interval is three years before and after this time node.Put the new into the underlying stocks and since September 22,2014,has never been out of the underlying stocks as a treatment group of samples,use propensity score matching method from has not been included in the margin of the underlying stock shares,selected the control samples.Using the Fama-French five factor pricing model,we calculate each factor according to the 2*3 grouping method to extract the idiosyncratic volatility.The difference in difference model is used to analyze the effect of margin trading on the idiosyncratic volatility,and then the multiple regression analysis is used to study the impact of financial transactions and margin trading on the idiosyncratic volatility.After analyzing the influence of margin trading on the idiosyncratic volatility,the revised Fama-Macbeth method is used to study the financial anomalies of the "idiosyncratic volatility puzzle" in China before and after the fourth expansion.If it exists,we will use the rewriting difference in difference model to analyze the impact of margin trading on the "idiosyncratic volatility puzzle".In order to verify the robustness of the results and the applicability of the five factor model,this paper also uses the trait volatility calculated by the Fama-French three factor model to test the robustness.Through the empirical study,the following conclusions are drawn: firstly,when the difference in difference model is used to get the stock in the range of the stock which has been included in the fourth dilatation standard,idiosyncratic volatility will be improved.This means that the margin trading will make the idiosyncratic volatility bigger;second,through multiple regression,the financial transactions will strengthen the idiosyncratic volatility,while the securities trading will weaken the idiosyncratic volatility.But in a comprehensive way,margin trading will strengthen idiosyncratic volatility;thirdly,by using the revised Fama-Macbeth to study the "idiosyncratic volatility puzzle" in our country,that is,there is a negative correlation between the idiosyncratic volatility and the expected rate of return;and fourthly,the difference in difference model shows that the margin trading can reduce the "idiosyncratic volatility puzzle",but it can not completely solve this financial anomaly.The innovation of this paper lies in the following three points.First,we use the Fama-French five factor pricing model and the Fama-French three factor pricing model to calculate the idiosyncratic volatility.The follow-up empirical analysis calculated by the former method,and the robustness test calculated by the latter method;second,not only study the influence of the margin trading on the idiosyncratic volatility,but also continue to study the effect of this system on the "idiosyncratic volatility puzzle";thirdly,the difference in difference model is used to empirically analyze the impact of margin trading on stock price volatility and "idiosyncratic volatility puzzle".The research significance of this paper not only enriches the research on the margin trading and the idiosyncratic volatility,but also provides some reference for the current disputes in the academic circle.Moreover,it can clarify whether the traditional financial theory is applicable in China.The research results of this paper provide relevant policy suggestions for the government,listed companies and investors.