The Impact Of Progressive Expansion Of Margin Trading And Securities Lending In China On Sentiment Effect

Behavioral Finance takes “investor's psychological factors”as one of the important research directions,based on the assumption that investors are bounded rationality,and believes that sentiment will have an important impact on asset pricing,capital market stability and macroeconomic stability.Before the pilot of margin trading and securities lending was officially launched,China's stock market had lacked a short-selling risk hedging mechanism in a long time,which caused the market overreact to the optimistic or pessimistic irrational sentiment and resulted in the soaring and plunging of stock market,affecting the stability of market.On March 31,2010,the margin trading and securities lending pilot was officially launched,ending the state of “unilateral market”in China,and it adopts the progressive expansion model.So far it has experienced seven expansions.However,can the progressive expansion model of margin trading and securities lending in China's A-share markets improve the impact of market irrational investment sentiment on stock pricing?In order to study the above problems,this paper uses the 2009-2018 China A-share listed companies as a sample.First,this paper quantifies the market stability by constructing a sentiment effect indicator that reflects the sensitivity of individual stock returns to market sentiment changes,and uses the sentiment effect as a key indicator for the subsequent empirical analysis.Second,the use of the multi-stage PSM-DID model explores the impact of the four times margin expansions in 2011,2013,2014,and 2016 on market stability.Finally,this paper quantifies the degree of margin financing and securities lending separately,and uses the extended multi-stage PSM-DID model to explore the impact on sentiment effect.At the same time,considering that companies in different market competition levels face different investor sentiment in the capital market,this paper divides the sample into monopolistic enterprises and competitive enterprises according to the degree of market competition,and explores the performance of the margin trading and securities lending on the sentiment effect under different sub-samples.The empirical results of this paper show that:(1)the progressive expansion of margin trading and securities lending can effectively reduce the sentiment effect of individual stocks in China's A-share market,and it plays a certain role in stabilizing market fluctuations;(2)The inhibitory effect of progressive expansion on the sentiment effect of individual stocks decreases as the degree of margin trading and securities lending increase;(3)The result of the sub-samples shows that the suppression effect of the progressive expansion of margin trading and securities lending on the sentiment effect is better in the competitive companies;(4)By comparing margin financing and securities lending transactions: For monopolistic companies,the sentiment effect is not significantly affected by margin financing transactions,but moderate securities lending can significantly reduce the sensitivity of such stock returns to changes in market sentiment,while for competitive companies,effectiveness of margin financing and securities lending transactions are relatively significant.The research in this paper subdivides the sample horizontally and conducts an in-depth investigation on the degree of margin trading and securities lending vertically.The results show that the the progressive expansion of margin trading and securities lending plays a positive role in suppressing the sentiment effect of individual stocks,although the suppression effect loses significance when the market is overheated.But the system is still worthy of affirmation by the capital market.The conclusion of this paper has certain practical significance for government policy formulation,corporate governance,and investor asset allocation.