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A new look on the probability of retail investor margin use and margin call

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  • Pratt, William R.
  • Kamal, Syed
  • Ma, Aixin

Abstract

We revisit a recent article, Kim et al. (2022) Finance Research Letters, vol.45,102146, exploring factors influencing the likelihood of margin trading and margin call for retail investors. We demonstrate that use of a more representative sample and consideration of factors, such as allowing brokers to trade for clients and fee structures, produce estimates different from Kim et al. We find that investors that pay a fee for investment advice are more likely to employ margin and experience a margin call. Whereas investors who grant trading authority to a professional are less likely to use margin and experience a margin call. FINRA National Financial Capability Study (NFCS)

Suggested Citation

  • Pratt, William R. & Kamal, Syed & Ma, Aixin, 2023. "A new look on the probability of retail investor margin use and margin call," Finance Research Letters, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:finlet:v:54:y:2023:i:c:s1544612323001733
    DOI: 10.1016/j.frl.2023.103800
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    References listed on IDEAS

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    1. Daylian M. Cain & George Loewenstein & Don A. Moore, 2005. "The Dirt on Coming Clean: Perverse Effects of Disclosing Conflicts of Interest," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 1-25, January.
    2. Brown, Stewart L., 1996. "Churning: Excessive trading in retail securities accounts," Financial Services Review, Elsevier, vol. 5(1), pages 43-56.
    3. Hong, Harrison & Scheinkman, José & Xiong, Wei, 2008. "Advisors and asset prices: A model of the origins of bubbles," Journal of Financial Economics, Elsevier, vol. 89(2), pages 268-287, August.
    4. Kramer, Marc M., 2016. "Financial literacy, confidence and financial advice seeking," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 198-217.
    5. Kim, Hohyun & Kim, Kyoung Tae & Hanna, Sherman D., 2022. "The Effect of Investment Literacy on the Likelihood of Retail Investor Margin Trading and Having a Margin Call," Finance Research Letters, Elsevier, vol. 45(C).
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