Research On Acceleration Effect Of Share Pledge Trading On Stock Price Cyclic Volatility In China

The paper examines how share pledge transactions affect stock price cyclic volatility.First,based on the investor overconfidence model proposed by Gervais and Odean(2001),the paper develops an investor overconfidence model about the impact of share pledge transaction on stock price by linking the signal transmission of share pledge transaction with investor decision-making.The research finds that share pledge trading can lead to emotional bias and consequently affect investment decisions.Specifically,the function of stock market volatility to the relative emotional bia of share pledge transaction first decreases and then increases,indicating that the more significant the emotional bias of irrational investors towards share pledge transaction is,the more violent the stock price fluctuation gets.When the scale of share pledge transaction leads to the dominant pessimism of irrational investors,the level of market volatility is at a high level.Secondly,the paper constructs the EGARCH-M model containing the impact factors of share pledge transaction,and proves that excessive increase of share pledge transaction plays a role as a market fluctuation amplifier on market stability,and has a certain negative impact on the continuous decline of stock index.It is found that:(1)at the 1% significant level,if the daily change of the scale of share pledge transaction is 1%,it could stimulate the fluctuation of stock index by 0.01%.This shows that there is indeed an accelerating effect of share pledge transaction on stock price cycle fluctuation in China from the empirical level.(2)At the 5% significant level,the acceleration effect of share pledge trading on stock price cyclic volatility is asymmetric.At the bear market,the share pledge transaction tends to be a short signal with higher liquidation probability.The stock index is more sensitive to the negative signal released by the share pledge transaction than the positive signal.When the stock index is on the decline,the share pledge transaction can aggravate the stock price cycle fluctuation,accelerating further decrease and restraining increase.Finally,from the perspective of behavioral finance,based on VAR model and impulse response test,the paper studies the relationship between investor sentiment indicators including share pledge trading factors and stock price cyclic volatility.It is found that:(1)Among the investor sentiment indicators,the proportion of share pledge transaction volume is 22.54%,and the proportion of market pledge rate is 21.49%.The impact of share pledge trading on investor sentiment has a positive impact.(2)Affected by investor sentiment,the volatility of A-share market moved from negative to positive,and then to zero.The explanatory power of investor sentiment lag including the scale of share pledge transaction to market volatility decreased from 21.56% in the short term to 19.90% in the long term.It shows that pledge trading does have accelerating effect on stock price cyclical fluctuation through investor sentiment effect.During the stock index crash,it may constitute a potential market instability factor.Based on the perspective of market stability,this paper analyzes the impacts of share pledge transaction on stock price cycle fluctuation,a step forward from related researches on the impact of share pledge transaction on stock index fluctuation.In terms of policy recommendations,it is concluded that the share pledge transaction does have accelerating effects on stock price cycle fluctuation in China.At the end of October 2018,the China Securities Regulatory Commission issued a statement that it is committed to the capital market reform to encourage value investment and allow institutional investors such as insurance and social security to play their due roles.On the one hand,the entry of insurance funds can gradually alleviate the liquidity risk of share pledge transactions in the future.On the other hand,in view of the current situation of China's capital market,China still needs to constantly improve the early warning system of share pledge transactions,so as to avoid risks similar to those brought by the entry of insurance funds in the early stage of financial innovation in securities.