| Margin requirements are considered as an important risk management instrument for margin trading.Theoretically,by adjusting the level of initial margin level,the regulatory authority can change investors’ transaction cost thus changing the scale of margin buying activity.However,in fact,China only adjusted the initial margin level once after the abnormal fluctuation of the stock market in 2015.In contrast,foreign regulatory authority adjusts margin level more frequently.The considerations that arise: Is China’s margin system arrangement invalid? To what extent the margin changes can affect margin buying activity? Is there a connection between margin buying activity and stock market trading? Based on this,this article studies the relationship between margin changes,margin buying and stock market trading.First,based on the event study method and fixed effects model,this paper studies the margin changes and its impact on margin buying activity.The results highlight that the increase of initial margin rate has a significant negative impact on margin buying activity with an apparent time lag effect.In addition,both large market capitalization and state-owned enterprise stocks respond more quickly to the policy adjustment.Secondly,based on the spillover index method,this paper investigates the impact of margin buying activity on stock market trading.The results highlight that there is a two-way spillover relationship,with margin buying activity playing a dominant role in information(risk)recipient on average.More importantly,the level of risk contagion actually affected by some major external shocks(such as the stock crash in 2015 and the Sino-US trade war in 2018).Margin buying activity tends to be a mean spillover receiver most time,whereas it acts as both a volatility spillover transmitter and receiver over the entire sample period.In sum,the empirical analysis implies that margin buying activity does have a close interrelationship with stock market trading in China.This study has important theoretical and practical significance and may help the regulators to understand the role of margin buying activity in China’s capital market more comprehensively,especially for whether the government should effectively control the stock market by changing the transaction costs of investors. |
