The Impact Of Margin Trading On Volatility Of China's Stock Market

China's margin trading pilot officially launched on March 31,2010,which made China's securities market bid farewell to a single business model,into two sides trading mode.The business of the margin trading has been protected from start-up to development,as the gradual expansion of the underlying securities and step by step increasing standard of eligible collateral.Since every decision of margin trading affect the change of the microstructure of securities market,controlling the risk of the overall market and single stock has become the focus of supervision.Even so,with the mechanism of the lever effect and boosting fluctuation,margin trading may lead to market pricing failure,and even the breeding stock price manipulation behavior which disrupts the market order.From the aspect of actual operation,volatility of China's securities market in 2015,highlights the deep-seated problems in the development of China's margin trading--the volatility in the market,caused by irrational investors structure,excessive individuals speculation involving and a lack of short selling tools has increased the systemic risk of the financial system.To ensure the smooth operation of the securities market is the basic requirement for the introduction of the new financial business.The volatility of China's securities market,where lacks of margin trading system,still appears fluctuations after the introduction of the margin operation for many years.It is of great significance to clarify those issues for the development of China's securities market —— whether the stock market volatility is caused by the margin system?Do both of them have no relationship? Could the margin trading stabilize the volatility of the market as most of the literature have expected?In order to study the above problems,this paper reviews domestic and foreign financing research in the field of literature,with the combination of economic and financial theory,and empirical research the impact on the margin trading on the volatility of index,stocks,and ETF funds respectively.In the test of the margin trading effects of different batches of the underlying stock market operation,we consider the different market patterns and stock valuation to discuss the influence mechanism of margin trading to stock volatility.In the empirical effect of ETF fund volatility on margin trading,we also consider the factors of net values of ETF funds and the market patterns.The main results of this research are as follows:Conclusion one: the market index data shows that buying long and index volatility caused by mutual causality.Selling short is index volatility's Grainger reasons,and the regression coefficient is significant,but the explanatory power of margin equation decomposition shows that the fluctuations of direction is not clear.To the different market index,the result of inspection of Shanghai index is close to the combination,while the result of inspection of Shenzhen index is totally different.Overall,the volatility of the stock index is mainly affected by its own historical fluctuations,as the effect of buying long to suppress the market volatility is not obvious(variance decomposition of less than 5%),and selling short has little effect on the index volatility.Conclusion two: margin trading of the underlying stocks data shows that buying long has enhanced the volatility of stocks significantly,which applies to all batches of selected subject.The conclusion that selling short has enhanced the volatility is not stable in the different batches of underlying stocks,while impact of the stock and incremental volatility conflicts with the different batches and different periods of selected stocks.From the perspective of the marginal impact,blue chip stocks take greater impact of selling short.Overall,the conclusion of buying long transaction enhanced stock volatility is robust,but the volatility effect of selling short on the stock is not.Since the amount of buying long is far greater than the selling short,margin trading shows the whole enhancement of stock volatility effect.Conclusion three: the valuation index such as PE index and PB index can not distinguish between the impacts of the margin on the volatility of the stock.Based on the empirical results of different operating patterns in the market,no matter whether the market is in the stable pattern,or the rise or fall of the unilateral trend,buying long transactions are to enhance the volatility of the underlying securities.In addition,selling short can reduce the volatility of the underlying securities in a unilateral upward trend.The mechanisms affecting the volatility of stocks come from two aspects.On the one hand,changes in the rate of return promote the volatility of the underlying securities.On the other hand,investors' emotional operations further strengthen the volatility.Overall,irrational investment behavior of investors in our stock market is significant.Investors chose to invest margin targets based on the data of existing margin trading,and the emergence of excitement or panic mood according to the rapid market change,boost the volatility of the stock market in terms of these emotions.Conclusion four: the margin of ETF fund data shows that buying long transactions can boost the volatility of ETF fund while selling short transactions are not significantly affected.From different trends of market,buying long transactions only significantly enhanced volatility of ETF funds in the market of overall downward pattern.Participation of leveraged money in ETF fund is relatively rational unilateral rise,while in the process of unilateral decline showed a certain fear of deleveraging.Engaging in the lower net asset value of the ETF fund which shows the poorer performance of historical performance will boost the fluctuation of ETF,while leveraged funds involved in the transaction of high net asset value of ETF funds are relatively rational.