Margin Impact On Volatility Of The Stock Market Research

Our country securities market formally introduced margin trading mechanism in December31,2010.It was a milestone time in China securities history. The margin trading developed at a high speed in the past two years. By the end of2011,the year-on-year growth rate of financing balance was close to200%.Discussion on the margin in the market is still uproar. How margin trading affect the securities market. Did margin trading increase market volatility, which has been a hot issue in the theory and market research.In this paper I study how the margin purchase and short selling act on the volatility of the market respectively. When I began my research, first I reviewed the theoretical research home and abroad. Then I introduced the short sale mechanism and reviewed the history of its development. In the section empirical test,I use Granger causality test, impulse response function and variance decomposition to do empirical test. Finally I reached the following conclusions:(1)China’s securities market, changes in stock index is the Granger causality of changes in margin balances, but margin trading balance change is not the Granger causality of stock index. The margin trading is not the nature reason of market volatility.(2) Stock index and margin balance has a long-term and stable co-integration relationship.(3)The impact of margin trading on security market is very small. Finally, this paper study the risks of margin trading, and give control measures to regulators、investors and brokers respectively.