Securities Credit Trading And Stock Market Volatility

Volatility is an intrinsic characteristic of the security market. Very high fluctuation will have a negative effect on the healthy movement of the security market. For guarding against and solving the security market volatility resulting in lose to the investor, analysis of the causes & developments of volatility should not only conducted from the macro-economic aspect, but also from the micro-mechanic aspect. Credit transaction, as one of the special micro mechanisms, will bring short selling & long selling mechanism to the market. Its introduction shall have an effect to the volatility of the security market.To clear whether credit transaction slows down or exacerbates fluctuations in the stock market, this paper made a research on the effect of credit transaction upon stock market volatility. By using econometric methods, the paper made an empirical research on how credit transaction influences the stock market volatility in Hong Kong and got that credit transaction does not exacerbate but slow down the fluctuations of the stock market. By comparing and drawing lessons from margin requirement managements of the United States & Japan, the paper put forward specific policy suggestions of margin requirement management in our country. The research is as follows:The first part introduced the concept, operating mechanism, functions, risks of the credit transaction, the credit transaction practice in foreign countries, the concept of volatility and the methods of measuring volatility. In addition, the paper analyzed margin ratio management practices of the United States and Japan to prevent credit transactions risk & lower volatility of the stock market.The second part discussed in depth the effect of credit transaction upon stock market volatility. By comparing & summarizing the research result of foreign countries and empirical research in Hong Kong security market, the paper had a research result on how the credit transaction influences the stock market volatility. The result is that short selling mechanism in Hong Kong lessens, not increases, the volatility.The third part gave recommendations on credit transaction management mechanisms based on the current market environment and gave a deep research on the securities management core areas-margin ratio management.