Whether Margin Trading Will Promote Insider Trading

Margin trading refers to the trading behavior in which an investor borrows money to buy stocks or borrow securities and sell them.The liberalization of margin trading means that investors in the market can not only long stocks but also short stocks,so the implementation of margin trading means investors have a new way of investment.In addition,the liberalization of margin trading also marks that China’s securities market is moving from a unilateral operating market to a two-way operation market,which to a certain extent will promote the development of China’s capital market.And it is of great significance.When China introduced the margin trading mechanism,many scholars began to study the impact of margin trading on China’s securities market.However,domestic scholars mainly study the impact of margin trading on stock market volatility,liquidity,pricing efficiency and crash risk,fewer scholars study the impact of margin trading on insider trading.However,margin trading provide a new arbitrage approach for insider traders,so this article use insider trading as an entry point,and then study how margin trading affects insider trading.Finally,this article will make several practical policy recommendations.According to the event research method,this article takes the quarterly report announcement date as the date of event,and takes the cumulative abnormal turnover(CAT)as the measure of insider trading.In this article,insider trading is the explanatory variable,and the explanatory variable is whether allow margin trading,Amihud illiquidity index and the increase of margin ratio.In addition,this paper divides the whole market into two parts,one is the stage when stock price rises and another is the stage when stock price declines.This will help studying the differences of margin trading on insider trading in different market conditions.Empirical results show that the implementation of margin trading will promote the occurrence of insider trading.When the stock price is rising,financing plays a role in promoting insider trading and short sales plays a role in curbing insider trading,while in the fall of stock prices,financing will curb insider trading and short sales will stimulate the occurrence of insider trading.In addition,in the case of strong liquidity and low margin ratio,the promotion of margin trading on insider trading may be stronger.