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The effect of margin trading, stock index futures, and firm characteristics on stock price synchronicity: Evidence from China

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  • Fonseka, Mohan
  • Ma, Yulong
  • Bei, Chengcheng
  • Samarakoon, Lalith P.

Abstract

This paper examines the effects of margin trading and stock index futures and the moderating role of firm-level and institution-level characteristics on stock price synchronicity in the Chinese stock markets. We find that both margin trading and stock index futures are positively correlated with stock price synchronicity. Margin trading and stock index futures have greater effects on state-owned enterprises (SOEs), firms with political connections, and firms with male CEOs. Domestic-listed firms and firms in regions with less institutional efficiency experience stronger effects of margin trading and stock index futures on stock price synchronicity. The financial crisis has a negative impact on the above relationships. Overall, margin trading exhibits a stronger effect on stock price synchronicity than stock index futures. Furthermore, we find that the breadth of institutional ownership, management entrenchment, transparency, and information asymmetry are significant channels in moderating the effect of margin trading and stock index futures on stock price synchronicity.

Suggested Citation

  • Fonseka, Mohan & Ma, Yulong & Bei, Chengcheng & Samarakoon, Lalith P., 2025. "The effect of margin trading, stock index futures, and firm characteristics on stock price synchronicity: Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:intfin:v:102:y:2025:i:c:s1042443125000551
    DOI: 10.1016/j.intfin.2025.102165
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    Keywords

    Margin Trading; Stock Index Futures; Stock Price Synchronicity; Firm Characteristics; Institutional Characteristics;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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