Impact of the Introduction of Securities Margin Trade on Stock Abnormal Returns

Abstract

Two groups of securities were permitted respectively to start margin trading on March 31th, 2010 and December 5th, 2011, which suggested an advancement of Chinese Securities Market. In this paper, with the sample data consisting of these stocks, the impact of the introduction of securities margin trade on stock short-term and long-run abnormal returns is studied, and the explanation of the resource of impact is given from the aspects of liquidity and dispersion of opinion, based on multivariate linear regression model. The empirical results show that in the short period after the introduction of securities margin trade, most sample stocks experience a decline in abnormal returns, while the liquidity of stocks increases. Stocks with high liquidity as well as low sensibility to liquidity before the introduction will experience a decline in abnormal returns after the introduction. Greater dispersion of opinion also leads to lower abnormal returns. In the long period after the introduction of securities margin trade, however, most sample stocks experience an increase in abnormal returns. Moreover, liquidity and dispersion of opinion have little influence on the abnormal returns.