Implementation Effect Assessment of Margin Trading: From the Perspective of Market Stability

The debate on the short-sale mechanism has lasted for a long time in both the academic and practical fields. In China’s stock markets, short sale was totally prohibited before 2010, but now the policy of margin trading has been implemented for seven years. Therefore, this paper aims to assess its implementation effect from the perspective of market stability. Employing the panel data model, we examine whether the volatility, skewness and kurtosis of stock returns will be affected after this stock is added into the margin trading list. The empirical results indicate that, if a stock is allowed to be short sold, its volatility and kurtosis will significantly decrease and its skewness will significantly increase. This implying that, the implementation of " margin trading” policy can help to improve the stock market stability in China. This conclusion is further supported by the robust analysis separately on Shanghai and Shenzhen stock markets and on different industries. Thus, our study confirms the success of " margin trading” policy and can also encourage the regulators to continuously explore new financial innovation and perfect the transaction system in China’s stock market.