TITLE:
The Empirical Study on Margin Trading and Pricing Efficiency—Evidence from Natural Experiment
AUTHORS:
Yafang Wei, Pinghai Li
KEYWORDS:
Short-Selling Constraint, Pricing Efficiency, Excess Returns, Response Speed to Message
JOURNAL NAME:
Modern Economy,
Vol.7 No.1,
January
14,
2016
ABSTRACT: Short selling mechanism
was introduced in Chinese market since March 31, 2010 and has developed for
five years. The relationship between margin trading and pricing efficiency is
worth studying. In this paper, we focus on the expansion event of underlying
stocks happened on September 16, 2013. By using event study method and panel
data results, and taking the underlying stocks and other stocks before and
after being allowed to the margin trading as the research objects, we reach the
following conclusions: First, short-selling constraint makes stocks overvalued
and hinders the response speed to messages; second, after introducing the
margin trading, especially we are well into short-sale era, not only does the
degree of overestimation of underlying stocks decrease, the response speed of
stocks to messages improves a lot. Meanwhile we find that there exists a link
between pricing efficiency and exchanges, turnover rate, circulation value.