A Study On The Market Effect Of Margin Trading System

In March2010, the securities market of our country began a business pilot of margin trading with the two-way trading mechanism. Because of the existence of short mechanism, the market price formation will be significantly affected. Positively, when securities prices go high, investors short sale; when securities prices go low, investors finance to buy. These activities can play a positive role in the stock price; negatively, if there is a strong speculative wish in the market, it may occur the phenomenon that selling short when market goes down and financing to buy when market goes up. As a result, the margin trading becomes a tool to buy when the price is up, and sell shares when the price goes down. What the actual effects on earth margin trading has generated on our local market. For this problem, this paper selected our country’s stock market as research object to analyze the ultimate effect of the margin trading on our local market with a comprehensive, in-depth and rigorous discussion.Specifically, this paper firstly outlined the courses of development of the margin trading on the world’s major markets, then highlight the characteristics of our margin trading and its practical significance in our country; Subsequently, it reviews and combing the range of literatures about the margin trading, and comment the literatures simply; Moreover, it analyzes the price discovery function of the mechanism of margin trading and the mechanism of the margin’s impact on market volatility; On this basis, this paper selected Shanghai and Shenzhen stock markets as the objects of study, and empirically analyzed the combined effect of margin trading; Finally, it proposed policy recommendations to improve margin trading on the basis of empirical research. The main conclusions of this article can be summarized as followings:firstly, the empirical testing of the impact of the margin trading on the stock market that uses the GJR-GARCH model shows that:the margin trading significantly reduces the overall volatility of China’s stock market; Secondly, the empirical testing of the impact of stock market on the margin trading that uses the classical linear regression model (CLRM) shows that:When the market rises, investors short sale; investors finance to buy when the market goes down, that is to say, margin trading has price discovery function. To some extent, it can promote the stock market return to reasonable levels and warrant a spike phenomenon. Finally, the empirical testing of the mutual influences between margin trading and stock market that uses the Granger causality test and impulse response analysis shows that:There are lead-lag relationships between the margin trading and stock market. It mainly performs that the changes of market leading the changes of margin trading.Our margin trading is introduced when the domestic market is not mature, and introduced in the context of economic transition period. The empirical results of this paper are important and meaningful for the adjustment of China’s margin trading, as well as how to further improve the accelerated development of a promotion with the international standards of mature markets.