Trader Leverage and Liquidity

• 成果类型: Article
• 署名作者: Kahraman, Bige; Tookes, Heather E.
• 署名单位: Yale University
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12507
• 发表日期: 2017
• 页码: 1567-1609
• 关键词: stock; volatility

摘要

Does trader leverage drive equity market liquidity? We use the unique features of the margin trading system in India to identify a causal relationship between traders' ability to borrow and a stock's market liquidity. To quantify the impact of trader leverage, we employ a regression discontinuity design that exploits threshold rules that determine a stock's margin trading eligibility. We find that liquidity is higher when stocks become eligible formargin trading and that this liquidity enhancement is driven by margin traders' contrarian strategies. Consistent with downward liquidity spirals due to deleveraging, we also find that this effect reverses during crises.