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Asymmetric effect of margin-trading activities on price crashes: evidence from Chinese stock market

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ABSTRACT Prior literature on the impact of margin-trading activity on stock price crashes is mixed and does not reach consensus. Using data from a Chinese margin-trading pilot programme initiated in… Click to show full abstract

ABSTRACT Prior literature on the impact of margin-trading activity on stock price crashes is mixed and does not reach consensus. Using data from a Chinese margin-trading pilot programme initiated in 2010, this article employs both margin-buying and margin-covering activities to investigate the asymmetric impact on stock price crashes. We find that margin-buying activities are beneficial reducing the price crash prone, especially in bad times. In contrast, margin-covering activities amplify price crashes in both good times and bad times.

Keywords: price crashes; margin trading; price; stock; margin

Journal Title: Applied Economics Letters
Year Published: 2018

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