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Journal of Finance Vol. 81 No. 4 2026

The Drivers and Implications of Retail Margin Trading

Jiangze Bian; Zhi Da; Zhiguo He; Dong Lou1,2; Kelly Shue; Hao Zhou3,2

1 Hong Kong University of Science and Technology · 2 University of Hong Kong · 3 Issues Research

open access

Abstract

Using granular data covering both regulated (brokerage‐financed) and unregulated (shadow‐financed) margin accounts in China, we provide novel evidence on retail investors' margin trading behavior and its price implications. We first show that retail investors' decisions to lever up in stock trading despite the hefty borrowing cost is related to their lottery preferences. We then show that margin borrowing affects investors' trading behavior—investors are more likely to liquidate their holdings as they approach margin calls. Finally, we show that margin‐induced trading aggregates to affect asset prices and contributes to shock spillovers across stocks (e.g., from lottery stocks to nonlottery stocks).

DOI
10.1111/jofi.70049
Volume
81
Issue
4
Pages
2217-2270
Language
en
Sources
crossref openalex

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