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.
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.