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The Impacts of Opening Margin Trading on Stock Return, Volatility and Turnover Rate in Taiwan

Author

Listed:
  • Dar-Hsin Chen

    (Department of Business Administration, National Taipei University, Taiwan)

  • Chun-Da Chen

    (Department of Finance, Da-Yeh University, Taiwana and Tennessee State University, U.S.A.)

  • Chih-Min Lai

    (Department of Banking and Finance, Tamkang University, Taiwan)

Abstract

This paper studies the impact of first opening margin trading on stock return, return volatility, and turnover rates via an event study. The results indicate that there is no relationship between changes in stock return volatility and industry sectors after opening margin trading. The different firm sizes make the TSE and OTC non-electric sector's stock return volatility has significant variation earlier than electric sector's when we prolong the investigate period. For turnover rate, opening margin trading can increase the TSE's turnover rate significantly. The result also shows that considering both sectors and firm sizes, they still have different turnover rates in the mid- and long-term. In addition, opening margin trading does have information content on the stock returns. During the event window, the electric sectors of both TSE and OTC have higher stock returns. All sectors except the OTC's non-electric sector have positive impacts by opening margin trading. It follows from what has been said that the TSE's electric sector is a better investment target during our sample period and its CAAR increases more in the bull market than in the bear market.

Suggested Citation

  • Dar-Hsin Chen & Chun-Da Chen & Chih-Min Lai, 2007. "The Impacts of Opening Margin Trading on Stock Return, Volatility and Turnover Rate in Taiwan," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 3(1), pages 97-124, January.
    • Handle: RePEc:jec:journl:v:3:y:2007:i:1:p:97-124
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    More about this item

    Keywords

    margin trading; abnormal return; volatility; turnover rate;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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