Research On The Effect Of Margin Trading To Underlying Stocks

The development of margin trading will affect underlying stocks’volatility and liquidity, even affect the investment securities, the runningof stock market, and the market regulation. So it’s very important tounderstand the effect of margin trading to underlying stocks’ volatilityand liquidity. The article begin with theory and use the Granger CausalityTest and the Panel Data regression analysis to test the effect of margintrading to underlying stocks’ volatility and liquidity.This paper first describes the basic concept and basic function ofmargin trading, the effect of margin trading to the underlying stocks’volatility and liquidity, and the development of margin trading. It focuseson analyzing the effect from two angels: financing and securities. In thefollowing section, the paper selects the margin trading daily data of partof shanghai and Shenzhen stock markets’ underlying stocks and dailyvolatility and liquidity data of these underlying stocks from March31,2010to December30,2011and uses the Units Root test and GrangerCausality test to analyze the effect of margin trading to the underlyingstocks’ volatility and then uses the Panel Data Regression Analysis test toanalyze the relationship between volatility and margin trading. Theconclusion is that margin trading can inhibit the underlying stocks’volatility and inhibition effect is obvious. At the same time, this articleuses the same empirical methods to do liquidity research and draws the conclusion that margin trading can raise the underlying stocks’ liquidityin a limited range.According to the conclusion of the above, for further play margintrading function, this article puts forward related suggestions on margintrading, such as actively guide margin trading, expand the scope of theunderlying stocks, increase the margin trading especially securitiestransactions, continually improve regulatory system, establish thereasonable deposit system, strengthen the margin trading knowledgepublicity and education, and promote the healthy development of thestock market smoothly.