Margin buying activity and stock market trading in China: Is there a connection?

Hui Hong, Shitong Wu and Cheng Zhang

International Journal of Finance & Economics, 2025, vol. 30, issue 2, 1564-1582

Abstract: This paper examines the dynamic linkage between margin buying activity and stock market trading in China. Built upon a multivariate DCC‐GJRGARCH model and the spillover index method, the results highlight a high dynamic conditional correlation between margin buying activity and stock market trading which shows apparent time‐varying features. Furthermore, there is a two‐way risk‐spillover relationship, with stock market trading playing a dominant role in risk transmission. More importantly, the level of risk contagion actually varies over time due to certain large external shocks. Margin buying activity tends to be a mean risk‐spillover receiver most time, whereas it acts as both a volatility risk‐spillover transmitter and a receiver over the entire sample period. The analysis thus implies that margin buying activity does have a close interrelationship with stock market trading in China, which has important implications for both regulators and investors.

Date: 2025
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