An Empirical Study On The Impact Of Leverage Ratio Of Margin Trading On The Idiosyncratic Risk Of The Stocks

The existing financial theory divides investment risk into non-dispersible systemic risk and dispersible idiosyncratic risk.Systemic risk refers to the risk caused by the changes of market factors such as interest rate and exchange rate.Idiosyncratic risk refers to the risk caused by each enterprise’s own factors,such as financial status,strategic planning,investment and financing leverage,etc.Traditional capital asset pricing model believes that idiosyncratic risk can be completely dispersed through portfolio,but there are many obstacles such as information asymmetry in the actual investment market,which caused investors cannot build an effective and fully diversified portfolio to disperse idiosyncrasies.In recent years,idiosyncratic c risk has become a hot topic that investors and academics pay more and more attention to.On the one hand,idiosyncratic risk exists objectively in the process of investment and cannot be ignored.On the other hand,the country actively promotes the development of margin financing and short selling system,which brings leverage effect to the capital market and gives investors the opportunity to "gain a lot from a small amount",which may increase the characteristic risk of the underlying stocks.Launched in 2010,margin trading has gone through seven rounds of expansion,and nearly 2,200 stocks have been added to the list so far.With the continuous expansion of the it’s scale,how does the leverage of margin financing affect the idiosyncratic risk?In order to explore this problem,this paper analyzes it from both theoretical and empirical aspects.Theoretically speaking,margin trading system brings convenience of bilateral trading into the stock market,which should improve the pricing efficiency of the capital market and smooth out the negative effect of stock characteristic volatility.When the price deviates from the real value of the stock,investors can short the stock through margin lending if it is overvalued by using the leverage effect to release pessimistic expectations and make the stock price fall back to the normal value,otherwise using the financing business to pull up the stock price.In order to verify whether the actual investment market is consistent with the theory,this paper selected some of the underlying stocks of margin financing and short selling as samples for research.I will select the ratio of margin financing and short selling balance to the market value of stock circulation as the leverage ratio,and used the Fama-French threefactor model to extract the characteristic volatility to measure the characteristic risk.The fixed effect model was used for total sample and sub-sample regression to compare and analyze the influence of margin leverage ratio on idiosyncrasies at different stages.On this basis,the propensity score matching method is used to match the appropriate control group and the underlying stock of margin financing and short selling to carry out the differential analysis.And the year 2015 is taken as the boundary to explore whether the policy guidance of "deleveraging" can effectively reduce the characteristic risk of the underlying stock of margin financing and short selling.The following conclusions are drawn from the empirical study: First,idiosyncratic risk is positively correlated with margin leverage ratio.The higher the leverage ratio of margin financing,the greater the volatility of stock characteristics.It can make a conclusion that the negative effect of margin financing is not fully played in the actual investment market;Secondly,the stimulating effect of margin leverage on the volatility of stock price characteristics weakened after the year 2015.The margin leverage continued to rise before year 2015,which exacerbated the characteristic volatility of the stock market.After the stock market volatility,margin leverage fell back and remained relatively stable,which significantly weakened the stimulus effect on the characteristic volatility.Thirdly,the "deleveraging" policy effectively reduces the special risk of stocks.Under the dual control of time and individual,the empirical results show that "Deleveraging" is beneficial to stabilize the volatility of stock price characteristics.