Margin Trading and Related Policy’s Effect on Disposition Effect

• Main Authors: Ting-Yi Lin, 林庭儀
• Other Authors: Shing-Yang Hu
• Format: Others
• Language: en_US
• Published: 2019
• Online Access: http://ndltd.ncl.edu.tw/handle/84gg5n

碩士 === 國立臺灣大學 === 財務金融學研究所 === 107 === The disposition effect is the tendency to sell winners too early and keep losers too long, commonly happened to investors. However, when investors use a high-leverage way, like margin trading, to trade, their disposition behavior might change. In this paper, I separate the two forms of transactions included in margin trading and observe their impact on disposition effect. Besides, when the government executes a policy reform related to margin trading, this could also affect the disposition effect. By observing listed companies in Taiwan from 1992 to 2018, we adopt Grinblatt and Han’s (2005) methodology and observe how margin trading interact with the disposition effect’s implication on the relationship between unrealized gains/losses and future stock return. The results show that with more margin purchasing (securities lending) balance, disposition effect’s implication on the relationship of unrealized gains/losses and future stock return is significantly stronger (weaker) and that these two opposing forces may be asymmetric. Accordingly, the association between the power of leverage, margin call, and margin requirement could be our explanation. Furthermore, I select two recent policy changes in Taiwan (“releasing short sales Restriction in 2013” and “further releasing of margin trading restriction in 2015”) and discover that both changes have significant negative influences on the disposition effect. Overall, the trading mechanism could be one of the factors affecting disposition effect and the government could change the trading mechanism through policies to refrain investors’ disposition behavior.