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Asymmetric effect of margin-trading activities on price crashes: evidence from Chinese stock market

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  • Dayong Lv
  • Qingsong Ruan

Abstract

Prior literature on the impact of margin-trading activity on stock price crashes is mixed and does not reach consensus. Using data from a Chinese margin-trading pilot programme initiated in 2010, this article employs both margin-buying and margin-covering activities to investigate the asymmetric impact on stock price crashes. We find that margin-buying activities are beneficial reducing the price crash prone, especially in bad times. In contrast, margin-covering activities amplify price crashes in both good times and bad times.

Suggested Citation

  • Dayong Lv & Qingsong Ruan, 2018. "Asymmetric effect of margin-trading activities on price crashes: evidence from Chinese stock market," Applied Economics Letters, Taylor & Francis Journals, vol. 25(13), pages 900-904, July.
    • Handle: RePEc:taf:apeclt:v:25:y:2018:i:13:p:900-904
    DOI: 10.1080/13504851.2017.1380285
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    Cited by:

    1. Yanxi Li & Siu Kai Choy & Mingzhu Wang, 2022. "The potential built‐in supply effect from margin trading in the Chinese stock market," The Financial Review, Eastern Finance Association, vol. 57(4), pages 835-861, November.

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