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).
Bian et al. (2026) studied this question.