Trader leverage and liquidity
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 de...
| Main Authors: | , |
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| Format: | Journal article |
| Language: | English |
| Published: |
Wiley
2017
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| _version_ | 1826271361272643584 |
|---|---|
| author | Kahraman, B Tookes, H |
| author_facet | Kahraman, B Tookes, H |
| author_sort | Kahraman, B |
| collection | OXFORD |
| description | 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. |
| first_indexed | 2024-03-06T21:55:27Z |
| format | Journal article |
| id | oxford-uuid:4cc4b8dc-3de3-4581-81e2-b0198e048675 |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-06T21:55:27Z |
| publishDate | 2017 |
| publisher | Wiley |
| record_format | dspace |
| spelling | oxford-uuid:4cc4b8dc-3de3-4581-81e2-b0198e0486752022-03-26T15:51:26ZTrader leverage and liquidityJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:4cc4b8dc-3de3-4581-81e2-b0198e048675EnglishSymplectic Elements at OxfordWiley2017Kahraman, BTookes, HDoes 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. |
| spellingShingle | Kahraman, B Tookes, H Trader leverage and liquidity |
| title | Trader leverage and liquidity |
| title_full | Trader leverage and liquidity |
| title_fullStr | Trader leverage and liquidity |
| title_full_unstemmed | Trader leverage and liquidity |
| title_short | Trader leverage and liquidity |
| title_sort | trader leverage and liquidity |
| work_keys_str_mv | AT kahramanb traderleverageandliquidity AT tookesh traderleverageandliquidity |