Margin Trading And Securities Market Quality

Margin trading in overseas capital market has a long trading history, foreign scholars’ research on the effects of margin trading is broad and profound, however, the margin trading’s impact on the stock market volatility, liquidity and price discovery efficiency did not reach a unanimous conclusion, or even controversial. In fact, margin trading has often been blamed for causing the price volatility of the stock market. Margin trading began on March 31, 2010 in china, and then China’s capital markets ended the unilateral and open the two-way trading system. The further study on how margin trading affect securities market quality has strong theoretical and practical significance for the healthy development of China’s capital market.The core indicators of the securities market quality are volatility, liquidity and efficiency of price discovery, which are the mainly research perspective of this paper.In this paper, the main contribution lies in using the corporate level micro data to investigate the influence of margin trading on the securities market quality; besides, different external market environments were considered, we test that the influence of margin trading on individual stocks’ volatility and liquidity in a bull market and bear market whether there was a significant difference.The period examind from 31 March 2010 to 31 December 2014, come to the mainly following conclusions:(1)In Shanghai and Shenzhen markets, margin trading is the granger cause of stock market volatility, while not the market liqudity.(2)The empirical results show that the margin target stocks’ volatility is lower than other stocks, and margin trading reduces the stocks’ price fluctuations; the margin target stocks’ liquidity is significantly higher than other stocks; margin trading can significantly improve liquidity of stocks.(3)Considering the characteristic of external market in a bull market and bear market, the empirical test results show that the effects of margin trading on individual stocks volatility exist significant differences in the bull market, and margin trading can’t reduce the effect of stock market volatility, it may even exacerbate volatility in the bull market;while the influence of margin trading on stocks liquidity in the bull and bear market environment exists no significant differences.(4)Based on event study method the empirical results show that the margin trading improved the price discovery efficiency of market: after the running of margin trading, the negative bias degree of stocks yield and individual stocks volatility of earnings are significantly lower, the frequency of the stock price fell sharply also declined significantly, the overall level of the individual stocks liquidity was significantly improved.Based on the above empirical conclusions, this paper argues that margin trading improve the operation quality of Shanghai and shenzhen stock market in the sample period,and the margin trading system should be improved to lower the volatility in the bull market.