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Are margin traders informed?

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  • Dayong Lv
  • Wenfeng Wu

Abstract

The literature offers contradictory views on the informativeness of margin trading using various measures of information content. Utilising data from a Chinese margin‐trading pilot programme initiated in 2010, this paper investigates whether margin traders are informed by directly examining the return predictability of margin‐trading activity. We find that margin‐trading activities cannot positively predict future stock returns. Moreover, we explore some non‐informational trading strategies used by margin traders, e.g., positive‐feedback strategies and moving‐average trading rules. These results suggest that margin traders are noise traders rather than informed traders, and margin trading conveys no new firm‐specific information.

Suggested Citation

  • Dayong Lv & Wenfeng Wu, 2019. "Are margin traders informed?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(5), pages 3105-3131, December.
    • Handle: RePEc:bla:acctfi:v:59:y:2019:i:5:p:3105-3131
    DOI: 10.1111/acfi.12578
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    Cited by:

    1. Yaping Zhou & Xundi Diao & Dayong Lv, 2023. "Role of OTC options in stock price efficiency: Evidence from the Chinese market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 4629-4655, December.

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