The Impact of Margin Trading on the Pricing Efficiency of Stocks

DOI: https://doi.org/10.62517/jse.202611404

Author(s)

Yiheng Liu

Affiliation(s)

Dongguan City University, Dongguan, Guangdong, China

Abstract

Against the backdrop of the full implementation of the registration-based IPO system and the standardization of quantitative trading, margin trading serves as the core tool for two-way trading in the A-share market. However, it has long been characterized by a pattern of "emphasizing margin purchases while neglecting short sales", insufficient stock supply for short selling, and speculative short selling, which constrain the exertion of pricing efficiency and amplify market volatility risks. This paper selects A-share stocks eligible for margin trading from 2019 to 2024 as the research sample, takes the sixth expansion of eligible stocks as a quasi-natural experiment, and conducts research using the difference-in-differences (DID) method, moderating effect analysis, grouped regression, and quantile regression. The results show that the expansion of margin trading eligibility significantly improves pricing efficiency; heterogeneous beliefs weaken the policy effect; the policy exerts a stronger effect in a rising market; margin purchases enhance pricing efficiency, while short sales and the imbalance between margin purchases and short sales significantly suppress pricing efficiency; short sales have a stronger negative impact on stocks with high pricing efficiency. Finally, policy recommendations are put forward in terms of stock supply for short selling, investor structure, and differentiated regulation.

Keywords

Margin Trading; Short Selling; Pricing Efficiency; Difference-in-Differences; Quantile Regression

References

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