A Study of the Influence of Margin Trading on Underlying ETF Fund's Pricing Efficiency-Based on the Perspective of Information Response

Abstract

Abstract:

In this paper we measure the pricing efficiency of ETF funds margin trading three aspects:the degree, the rate and the lag of information reaction, and then we construct a double difference model on the influence of the pricing efficiency of underlying ETF fund and conduct an empirical study. The findings are as follows. Firstly, margin trading can reduce the asymmetry of the speed at which ETF fund prices react to good news and bad ones, and for ETF of the high turnover, it reduces the degree of response lag to information. Secondly, for ETF fund of the higher price level, it is more significant that margin trading promotes the "co-up" effect of the ETF fund prices. Simultaneously, it can inhibit the reaction speed of information and reduce information response lag. Thirdly, for the ETF funds of larger size, margin trading reduces the information reaction degree during the downward time of market. Meanwhile, the information response lag of the ETF fund is significantly reduced. Finally, for the ETF of lower discount rate, margin trading mechanism reduces the information reaction degree of prices in a bull market, and increases the asymmetric of information reaction speed in a bear market. For ETF of the lower discount rate, the introduction of margin trading mechanism reduces the lag of response to information.

Key words: margin trading, ETF fund, pricing efficiency, difference-in-differences model

Wang Liang, Qin Longhao, Hui Mengmeng. A Study of the Influence of Margin Trading on Underlying ETF Fund's Pricing Efficiency-Based on the Perspective of Information Response[J]. , 2019, 31(9): 18-27.

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