Did the Introduction of Securities Margin Trading Decrease China¡¯s A-Share Market Volatility?

Maoguo Wu, Hanyang Zhang and Kwok-Leung Tam

International Journal of Financial Research, 2017, vol. 8, issue 3, 135-141

Abstract: Securities margin trading is a form of credit trading that is used extensively in mature securities markets. With the rapid development of its securities market, China introduced securities margin trading to its A-share market on 31st March 2010 for the purpose of reducing A-share market volatility. Owing to the fact that the introduction of securities margin trading in 2010 only applied to part of the A-share transaction targets, it can be treated as a natural experiment. This paper uses difference-in-differences analysis to investigate whether the introduction of securities margin trading in 2010 decreased China¡¯s A-share market volatility. By selecting 50 underlying stocks of securities margin trading as a ¡®treatment group¡¯ and 50 non-underlying stocks as a ¡®control group¡¯, this paper utilizes a panel dataset comprising 100 stocks for the period 31st March 2009 ¨C 31st March 2011. Results indicate that the introduction of securities margin trading in 2010 significantly decreased China¡¯s A-share market volatility. In conclusion, this paper recommends that China reduces the barriers and transaction costs of securities margin trading, extends the supply of underlying stocks for securities lending, and enhances the capital supply of margin trading.

Keywords: securities margin trading; China¡¯s A-Shares; volatility; difference-in-differences (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:jfr:ijfr11:v:8:y:2017:i:3:p:135-141

DOI: 10.5430/ijfr.v8n3p135

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