Leveraged trading and stock returns: Evidence from international stock markets

Zhuo Chen, Pengfei Li, Zhengwei Wang and Bohui Zhang

Journal of Financial Markets, 2024, vol. 69, issue C

Abstract: Are margin traders as well-informed as short sellers when it comes to leveraged investing? Our paper, utilizing a unique dataset on stock-level short selling and margin trading from three international stock markets, reveals that while short selling has cross-sectional return predictability, margin trading does not. In comparison to short selling, margin-trading activities demonstrate a stronger correlation across stocks and weakly predict firm fundamentals. This suggests that margin traders are less likely to possess a firm-specific information advantage. Our findings at the investor account level also indicate that margin traders are less sophisticated than short sellers.

Keywords: Short selling; Margin trading; Future stock returns; International finance (search for similar items in EconPapers)
JEL-codes: G10 G11 G23 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:69:y:2024:i:c:s1386418124000259

DOI: 10.1016/j.finmar.2024.100907

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