Margin trading and spillover effects: Evidence from the Chinese stock markets |
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| Institution: | 1. School of Economics and Management, Huzhou College, 1st Xueshi Road, Wuxing District, Huzhou, Zhejiang Province, PR China;2. International Business School Suzhou, Xi''an Jiaotong-Liverpool University, PR China;1. Department of Finance, Corvinus University of Budapest, F?vám tér 8, Budapest, 1093, Hungary;2. Asia-Europe Institute, Universiti Malaya, Jln Profesor Diraja Ungku Aziz, 50603 Kuala Lumpur, Wilayah Persekutuan Kuala Lumpur, Malaysia;3. Department of Finance, Budapest Business School University of Applied Sciences, Buzogány u. 10-12, Budapest 1149, Hungary |
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| Abstract: | Using a sample of Chinese stocks, we demonstrate that liquidity and return in stocks with margin trading can spread to other stocks causing spillover effects. Furthermore, the level of margin interest has a positive relation with the degree of spillover effects from relevant stocks. In addition to the deleverage mechanism which has received support from recent studies, we propose the cross-asset learning behavior in stock markets as a new mechanism to explain such relation. The mediation models suggest that the cross-asset learning mechanism can explain a large proportion of the relation between margin trading and spillover effects in stock markets. |
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