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| Stock Price Informativeness and Investment-Price Sensitivity: Evidence from a Natural Experiment of Margin Trading |
| CHEN Kang, LIU Qi
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Institute of Chinese Financial Studies, Southwestern University of Finance and Economics;
Guanghua School of Management, Peking University |
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Abstract Using the data from 2006 to 2015, we study the impact of margin trading on investment-price sensitivity. We find the evidence of feedback effects in Chinese stock market, that is, the implementation of margin trading policy increases the investment-price sensitivity. This result is robust when we use the PSM matching method to refine the control group. We also find that the impact of margin trading on investment-price sensitivity is more significant among the firms with higher institutional holdings, higher liquidity, and the firms in the emerging industries. We also follow the previous literature to study how financing constraint affects the impact of margin trading on investment-price sensitivity, and find that the impact is stronger in state-owned firms and larger firms. Finally, we find that the feedback effects are stronger if the scale of margin trading is larger.
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Published: 29 October 2018
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