An Empirical Study Of The Relationship Between Margin Trading And Stock Prices

The impact of margin trading on the stock market has been the focus of thescholars’debate,however, most of the current study is only concerned about the impactof margin trading on the overall market volatility, few peoplestudy aboutthe impact ofmargin trading on stock price. From the perspective of individual stocks, margin tradingand stock prices are closely related: Margin trading can reflect the expectations of theinvestors, thus, the share prices will showmore information and change because of themargin trading. Therefore, it is very important to studydeeply on the impact of margintrading on stocks.Firstly, the article introduces the basic concepts of margin trading from threeangles: the main features of the margin, the business model of margin and the tradingsystem of margin. Secondly,the paper describes the theory of how margin tradingimpacton the stock price. After that is the empirical analysis of the impact of margintrading on the stock price, which mainly including Granger causality test, VAR modeland panel data models.At last,Basing on earlier research, the paperstudys about whatkind of stocksis much better, and determines the optional stocks portfolio based on theconclusions.The main research findings of this paper are:1.Financing balance has impact on the overall stock market,margin balance doesnot.In the short term,changes in financing balance have a significantreverse impact onthe market trend.2. In the short term, margin trading has a significant impact on the stocks. In thelong run,the monthly margin balance has a significant positive impact on the monthlyaverage price of the stock and the margin balance will continue to impact on the stockprice for a long time.3.Within a year, the kind of non-margin stocks better than the kind ofmargin stocks,whilethe volatility of the former is slightly higher than the latter. Within the kind ofmargin stocks,the larger market capitalization the better,the higher turnover the better.