Margin and Short-Selling System, Investor Sentiment and Systemic Risks of Stock Market

DENG Xuebin, HU Fan

Jinan Journal ›› 2021, Vol. 43 ›› Issue (9) : 54-67.

PDF(680 KB)
PDF(680 KB)
Jinan Journal ›› 2021, Vol. 43 ›› Issue (9) : 54-67.

Margin and Short-Selling System, Investor Sentiment and Systemic Risks of Stock Market

  • DENG Xuebin, HU Fan
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Abstract

Does margin and short-selling trading affect the systemic risks of stock market through investor sentiment? From the perspective of investor sentiment, using five large-scale adjustment events of the margin trading system as natural experiments, we adopt the difference-in-differences model (DID) to explore the impact and mechanism of margin and short-selling trading system on the stock systemic risks. We find that after the introduction of margin and short-selling trading system, the systematic risks of the stocks have increased by 6% on average. Furthermore, the margin mechanism and short-selling mechanism have an opposite impact on systemic risks. The margin mechanism enlarges the investors' return and risk, thus enlarges the investors' sentiment, leading to the rise of systemic risks. On the contrary, both the investors' optimism and pessimism can be fully expressed under the short-selling mechanism, leading to the decline of systemic risk. The empirical results show that there is an unbalanced development between the margin trading and short-selling trading. The conclusions deepen the understanding of how the trading system affects systemic risks, and also provide inspiration for how to solve the asymmetric development of margin trading and short-selling trading to maintain the stability of China's capital market.

Key words

investors' sentiment / leverage mechanism / margin trading / short-selling mechanism / systematic risks

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DENG Xuebin, HU Fan. Margin and Short-Selling System, Investor Sentiment and Systemic Risks of Stock Market. Jinan Journal. 2021, 43(9): 54-67
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