The Research Of The Influencing Of Shorting And Margin Financing Strength On China’s Stock Market Volatility

How the relationship between margin trading and the volatility of stock market is has been a hot debate issue between the theory and practice, the international community has not yet unified a view so far. After several years of discussion, research and preparation, the China’s securities market officially launched the margin trading mechanism on31March2010finally. The introduction of this mechanism ends years of unilateral operation, and provides a new profit way for investors and brokers in China. At the same time, this new trading mechanism also will have a far-reaching influence on the securities market of our country, researching on this topic will have important academic value and practical significance.This paper, on the basis of combing the existing literatures, first classified of domestic and foreign scholars of various expositions for impact of margin trading on the stock market volatility, and this classification laids a theoretical foundation for this paper. Then, we summarized the concept, characteristics and course of development of margin trading, and compared with our current margin trading system, analysised of the possible direction of development of the margin trading system combined with China’s actual situation. Finally, we described the meaning of the stock market volatility and several commonly used metrics, and analyzed the mechanism of action of the margin trading on the stock market volatility. In the empirical works, we select the actual data of margin trading of China’s stock market, test and verify that there is a significant impact of the introduction of margin trading on China’s stock market volatility by adding a dummy variable in the variance equition of the GARCH model, Then by using impulse response function and variance decomposition method analyzes the impacts of direction and intensity that margin strength will have on the stock market volatility. Study found that the two time periods before and after the launch of margin trading, market volatility levels changed significantly, and there is reason to believe that the introduction of margin trading is one of the reasons that causing this change, what’s more, the direction of the impact of short selling and margin on the stock market volatility is not necessarily the same, this study shows that magin transactions icreased the stock market volatility, short selling transactions ultimately reduced the stock market volatility. In addition, the impact of margin strength and shorting strength have on the stock market volatility is not static, it increased gradually over time, but the absolute level of impact strength is still very low.At last, according to previous studies and this article, combined with realistic background, the relevant authorities need to work out suitable policies based on the characteristics of the impact of margin trading on the stock market volatility, let the margin trading mechanism play its positive role in the market.