Margin trading and leverage management

Bian, Jiangze, Da, Zhi, He, Zhiguo, Lou, Dong ORCID: 0000-0002-5623-4338, Shue, Kelly and Zhou, Hao (2021) Margin trading and leverage management. Financial Markets Group Discussion Papers (839). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

We use granular data covering regulated (brokerage-financed) and unregulated (shadow-financed) margin trading during the 2015 market turmoil in China to provide the first systematic analysis of margin investors' characteristics, leverage management policies, and liquidation choices. We show that leverage constraints induced substantial forced and preemptive sales, and leverage and cash management differed substantially across investor and account types. We explore the relation between margin trading and shock propagation, and show that China's price limit rule led to unintended contagion across stocks. Compared to brokerage investors, shadow investors were closer to their leverage constraints, and played a more significant role in transmitting shocks across stocks.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2021 The Authors
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions
JEL classification:	G - Financial Economics > G0 - General > G00 - General G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
Date Deposited:	18 May 2023 08:30
Last Modified:	23 Apr 2024 10:18
URI:	http://eprints.lse.ac.uk/id/eprint/118851

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