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Article

Asymmetric effect of margin-trading activities on price crashes: evidence from Chinese stock market

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ABSTRACT

Prior literature on the impact of margin-trading activity on stock price crashes is mixed and does not reach consensus. Using data from a Chinese margin-trading pilot programme initiated in 2010, this article employs both margin-buying and margin-covering activities to investigate the asymmetric impact on stock price crashes. We find that margin-buying activities are beneficial reducing the price crash prone, especially in bad times. In contrast, margin-covering activities amplify price crashes in both good times and bad times.

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Acknowledgement

This work was supported by the National Natural Science Foundation of China (Grant number: 71222203) and the Science Foundation of Ministry of Education of China (Grant number: 15YJAZH060).

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Results remain qualitatively similar without this orthogonalization.

2 We also divide our sample according to market return, and the result still holds.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71222203] and Science Foundation of Ministry of Education of China [15YJAZH060].

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