How does the balance of securities lending affect investors’ sentiment in the securities margin trading market?——An Empirical Study Based on Impulse Response Function
DOI:
https://doi.org/10.61173/t683js35Keywords:
Short selling, Investor sentiment, Securities lending, Subjective risk premiumAbstract
In 2010, China launched the “margin trading and securities lending” pilot program for the first time as an initial exploration of the short selling mechanism. Subsequently, it has been expanded multiple times. With the increase in the number of underlying stocks and the relaxation of short selling constraints, there has been a noticeable shortage of securities lending sources. To address this issue, China introduced the “securities lending” policy after margin trading, and selected 90 stocks as the first batch of pilot stocks. Although the short selling mechanism has been developed in China for 14 years, compared with other mature capital markets, relevant regulations and the scale of short selling transactions in China are still in the development stage. Following a wave of market downturns in the second half of 2023, rumors about securities lending and shorting the market continued to ferment, and investor sentiment hit rock bottom. In response to market conditions, the China Securities Regulatory Commission (CSRC) has taken a series of measures to strengthen supervision of securities lending businesses, maintain fair market trading order, and ensure the smooth operation of the capital market. Therefore, continuous monitoring of the impact of the short selling mechanism on China’s capital market is necessary.This study selects all A-shares disclosed by the exchanges as research objects. The research period is from March 2021 to February 2024. On the premise of referencing existing academic achievements at home and abroad, PCA (Principal Component Analysis) is used to construct investor sentiment proxy variables, subjective risk premium variables are set, and VAR models and impulse response functions are used to explore the relationship and transmission mechanism between securities lending balance, subjective risk premium, and investor sentiment, and suggestions for policy formulation are made.
References
[1] Miller E.M. (1977). Risk, Uncertainty, and Divergence of Opinion. Journal of Finance, 32(4), 1151-1168.
[2] Diamond D.W., & Verrecchia R.E. (1987). Constraints on Short-Selling and Asset Price Adjustment to Private Information. Journal of Financial Economics, 18(2), 277-311.
[3] Jones C.M., & Lamont O.A. (2002). Short Sale Constraints and Stock Returns. Journal of Financial Economics, 66(2-3), 207-239.
[4] Chang E.C. (2007). Short-Sales Constraints and Price Discovery: Evidence from the Hong Kong Market. Journal of Finance, 62(5), 2097-2121.
[6] Biais, B., Bisiere, C., & Decamps, J.P. (1999). Short Sales Constraints, Liquidity and Price Discovery: An Empirical Analysis on the Paris Bourse. European Financial Management, 5(3), 395-410.
[7] Fung J.K., & Draper P. (1999). Mispricing of Index Futures Contracts and Short Sales Constraints. Journal of Futures Markets, 19(6), 695-715.
[8] Chang E.C. (2007). Short-Sales Constraints and Pricing Discovery: Evidence from the Hong Kong Market. Journal of Finance, 62(5), 2097-2121.
[9] Liao S.G., & Yang Z.J. (2005). Short-Selling Mechanism, Volatility, Liquidity—An Empirical Study Based on the Hong Kong Stock Market. Management World, 12, 6-13+171.
[10] Zhou C.S., Yang Y.H., & Wang Y.P. (2005). Research on Transaction-Based Price Manipulation in China’s Stock Market. Economic Research, 10, 70-78.
[11] Xu H.W., & Chen X. (2012). Does the Introduction of Margin Trading and Short Selling Improve the Pricing Efficiency of Underlying Stocks in China? An Empirical Study Based on the Double Difference Model. Management World, 05, 52-61.
[12] Xiao H., & Kong A.G. (2014). Mechanism of Margin Trading and Short Selling on the Characteristic Volatility of Stock Prices: Empirical Evidence Based on the Double Difference Model. Management World, 08, 30-43+187-188.
[13] Li Z.S., Chen C., & Lin B.X. (2015). Does the Short-Selling Mechanism Improve the Pricing Efficiency of the Chinese Stock Market? Evidence from a Natural Experiment. Economic Research, 50(04), 165-177.
[14] Xie L.X., Zhang X.D., & Zhang Y. (2018). Expansion of Margin Trading and Short Selling and Liquidity. Management Science, 31(06), 46-57.
[15] Chu J., & Fang J.X. (2016). The Arrangement of China’s Margin Trading and Short Selling System and the Worsening of Stock Price Crash Risk. Economic Research, 51(05), 143-158.
[16] Zhang Z.X., & Wang H.L. (2013). Investor Sentiment, Adjustment of Subjective Beliefs and Market Volatility. Financial Research, 2013(04), 142-155.
[17] Yang B. (2015). An Empirical Study on the Impact of Investor Sentiment on Stock Market Returns and Volatility in China. Liaoning University.
[18] Xiong W., & Chen L.N. (2015). Stock Characteristic Volatility, Stock Returns and Investor Sentiment. Management Science, 28(05), 106-115.
[19] Shiller, R.J. (2016). Irrational Exuberance. Third Edition. Renmin University of China Press.
[20] Taylor, R. (2016). The Behavioural Economics. First Edition. CITIC Press.
Downloads
Published
Issue
Section
License
Copyright (c) 2024 by the authors.
This work is licensed under a Creative Commons Attribution 4.0 International License.
