Journal article
Trader leverage and liquidity
- Abstract:
- 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 for margin 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.
- Publication status:
- Published
- Peer review status:
- Peer reviewed
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Access Document
- Files:
-
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(Preview, Accepted manuscript, pdf, 496.8KB, Terms of use)
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- Publisher copy:
- 10.1111/jofi.12507
Authors
- Publisher:
- Wiley
- Journal:
- Journal of Finance More from this journal
- Volume:
- 72
- Issue:
- 4
- Pages:
- 1567-1610
- Publication date:
- 2017-06-05
- Acceptance date:
- 2016-08-05
- DOI:
- EISSN:
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1540-6261
- ISSN:
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0022-1082
- Language:
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English
- Pubs id:
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pubs:641239
- UUID:
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uuid:4cc4b8dc-3de3-4581-81e2-b0198e048675
- Local pid:
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pubs:641239
- Source identifiers:
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641239
- Deposit date:
-
2016-09-02
- ARK identifier:
Terms of use
- Copyright holder:
- American Finance Association
- Copyright date:
- 2017
- Notes:
- © 2017 the American Finance Association. This is the accepted manuscript version of the article. The final version as well as supporting information are available online from Wiley at: https://doi.org/10.1111/jofi.12507
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