Impact of margin-trading activities on stock market returns and volatility: Evidence from China

Xingjian Liang; Yiheng Su; Tseng-Chan Tseng

doi:https://doi.org/10.5281/zenodo.21377115

Xingjian Liang¹✉,

Yiheng Su¹,

Tseng-Chan Tseng¹

¹ Economics and Management College Zhaoqing University, Zhaoqing, China.

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Abstract

This study employed a GARCH model for parameter estimation and incorporated the incremental variables of financing balance, securities lending balance, and margin trading balance into the mean and variance equations to explore the impact of margin-trading activities on stock market returns and volatility in China. The empirical results showed that financing balance; securities lending balance, and margin trading balance were all positively related to the returns of the CSI 300 Index. In contrast, these margin-trading activities were found to have a significantly negative effect on CSI 300 volatility, implying that they contribute to the mitigation of stock market fluctuations. Overall, the results suggest that the liberalization of margin-trading policies contributes to stock market stability.

Keywords: financing balance; securities lending balance; return and volatility; GARCH model.

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