Private placement is an important financing tool for listed companies in China, and the lock-up arrangement is its supporting system. The Efficient Market Hypothesis suggests that, if investor expectations are unbiased, there will be no abnormal fluctuations in the stock prices of listed companies before and after the unlocking day. However, around the time of the unlocking of private placement shares, the stock prices generally show a V-shaped pattern.

Through the empirical analysis of the Chinese A-share stocks from May 8th,2006 to December 31st, 2016, I found that from the 40th day before the unlocking day to the 90th day after, the stock price showed an evident first-downward-then upward trend. The lowest price appeared near the unlocking day. Meanwhile, the greater stocks fall before the unlocking day, the greater prices rise after that. The characteristics of the distinctive difference between the stock prices before and after the unlocking day can provide investment opportunities.

By reviewing research on investor behavior, this paper suggests that the V-shaped pattern can be explained by the influence of investors’ psychological factors on their trading behavior. The general performance of the stocks before the unlocking day is negative due to the increasing uncertainty perceived by investors. After the unlocking day, the uncertainty gradually disappears and the stock rebounds. In addition, I found that stock returns during the lock-up period, shareholder background, and the length of lock-up period also had significant impacts on the V-shaped price trend.

Although margin trading has significant impacts on the stock market, extant research has mainly focused on its effect on stock price volatility and has rarely examined its influence on the rate of returns. In addition, little systematic research has examined the differential effects of margin trading under different circumstances. This thesis examines the effects of margin trading in bull market, bear market, balanced market and among stocks included in main board, SMEs(small and medium-sized enterprises) board, GEM(growth enterprises board), as well as large-cap and small-cap in China. I further studied the long-, medium-, and short-term influences of margin trading on the volatility of stock price, return rate, and liquidity of the market by both using the SVAR model and conducting panel data analyses.

The findings show that: a)Volatility. Margin trading can effectively curtail the medium- and short-term volatility of the share price under any market condition but has no prominent influence on long-term volatility. b)Profitability. Margin trading enhances profitability in the bull market with an apparent leverage effect while having no significant effects on short-term profitability in the balanced market and the bear market. c) Individual shares with different attributes. The influences of margin trading on the large-cap and small-cap shares, shares with high vs. low PE ratio, shares included in the main board and SMEs stocks vary in different types of market. d) Liquidity. The influences of margin trading on the fluidity of market are significantly different in the bull, bear, and balanced markets.

Finally, I set up a new trading strategy based on the above conclusions. The result from hypothetical trading demonstrates that the newly-created trading strategy works better than the long-term holding strategy, highlighting the practical implications of this thesis in addition to its implications for research