How does the balance of securities lending affect investors’ sentiment in the securities margin trading market?——An Empirical Study Based on Impulse Response Function

Abstract

In 2010, China launched the “margin trading and securities lending” pilot program for the first time as an initial exploration of the short selling mechanism. Subsequently, it has been expanded multiple times. With the increase in the number of underlying stocks and the relaxation of short selling constraints, there has been a noticeable shortage of securities lending sources. To address this issue, China introduced the “securities lending” policy after margin trading, and selected 90 stocks as the first batch of pilot stocks. Although the short selling mechanism has been developed in China for 14 years, compared with other mature capital markets, relevant regulations and the scale of short selling transactions in China are still in the development stage. Following a wave of market downturns in the second half of 2023, rumors about securities lending and shorting the market continued to ferment, and investor sentiment hit rock bottom. In response to market conditions, the China Securities Regulatory Commission (CSRC) has taken a series of measures to strengthen supervision of securities lending businesses, maintain fair market trading order, and ensure the smooth operation of the capital market. Therefore, continuous monitoring of the impact of the short selling mechanism on China’s capital market is necessary.This study selects all A-shares disclosed by the exchanges as research objects. The research period is from March 2021 to February 2024. On the premise of referencing existing academic achievements at home and abroad, PCA (Principal Component Analysis) is used to construct investor sentiment proxy variables, subjective risk premium variables are set, and VAR models and impulse response functions are used to explore the relationship and transmission mechanism between securities lending balance, subjective risk premium, and investor sentiment, and suggestions for policy formulation are made.