Does Margin Trading System Reduce Stock Price Synchronicity?

According to the research of Morck,Yeung and Yu(2000)and Jin and Myers(2006)on 40 countries,China has a high degree of stock price synchronicity,ranking second and first among the 40 countries respectively.Stock price synchronicity refers to the phenomenon of stock price rising and falling together.High stock price synchronicity is harmful to the stock price reflecting its intrinsic value and will result in reducing the pricing efficiency of the stock market.The reason for the high stock price synchronicity in China may be the imperfect function of the stock market,such as the restriction of margin trading system,the market lacks short selling mechanism,and investors lack channels to fully express their information into the stock price,which results in higher stock price synchronicity and lower market pricing efficiency.Until March 31,2010,the Shanghai Stock Exchange and Shenzhen Stock Exchange opened the margin trading system,and the margin trading system was officially launched,ending the"unilateral market"era in China.Since then,the underlying securities have been adjusted and expanded on a large scale for many times.Especially since March 2017,the Shanghai Stock Exchange and Shenzhen Stock Exchange have decided to establish a regular evaluation and adjustment mechanism for securities subject to margin trading.At the end of each quarter,the underlying securities are evaluated and adjusted as the situation warrants.The margin trading system is in a normal state,and the scale of margin trading system is increasing.Before the introduction of margin trading system,although investors can borrow money to buy stocks through financial leverage,which may not as convenient and fast as financing transactions,and may restrict investors'trading behavior to a certain extent.What's more,investors are restricted to short-selling,and can't make profits by the falling of share prices.Both of these restrictions lead to the inadequate expression of information held by investors,and information can not be fully reflected in the stock price.Furthermore,it will lead to high stock price synchronicity and reduce the pricing efficiency of the stock market.The introduction of margin trading system provides investors with a channel to fully express their information,and improves the structure of stock market,and improves the liquidity of stock market.The introduction of the margin system will play an incentive and deterrent role to the target company to some extent.Whether it is out of the upward expectation of the company's share price or out of short selling pressure,the target company will choose to regulate its own behavior and improve the company's information transparency,then influence the stock price synchronicity.However,since the implementation of margin trading system,short selling is limited compared to financing transactions.Practical commentators named such s margin trading"lame duck".As of November 2018,the financing balance was 764.8 billion,and the short selling balance was 7.9 billion.In this case,can the margin trading system have the expected effect of policy and reduce the stock price synchronicity?This paper uses the quasi-natural experiment opportunity of the introduction of margin trading system and regular evaluation and adjustment mechanism to study the impact of margin trading on stock price synchronicity through the DID model and explore its mechanism.The results show that:(1)After the introduction of the margin trading system,the stock price synchronicity of the underlying securities is significantly reduced;(2)After the introduction of the margin trading system,the stock price synchronicity is reduced by improving the transparency of the company's information.(3)After the introduction of margin trading system,the stock price synchronicity is reduced by reducing the noise trading.(4)Analyst attention can enhance the negative impact of margin trading system on the stock price synchronicity.(5)Through the time-division test,it is found that the stock price synchronicity of the underlying securities decreases significantly after the introduction of the margin trading system in all of the adjustment period.(6)The paper studies the financing mechanism and securities trading mechanism respectively,and finds that only the financing mechanism can significantly reduce the stock price synchronicity due to the significant difference in trading volume.