An Empirical Analysis Of Margin Trading Impact On Liquidity Of The Stock Market In China

Liquidity is the vitality of the stock market. Lack of liquidity, the trading isdifficult to accomplish and the market has lost its value of existence. Thedevelopment and evolution of modern securities markets is a process of continuousexploration and improve liquidity. On March31th,2010the Margin Trading businesswas officially launched, the business completely broke the China securities marketwhich can only buy long and not short sell on the unilateral shorting the pattern oftrading systems. Judging from finance theory and the experience of margin tradingbusinesses with developed market, margin trading businesses can enhance liquidityand stabilize the market. But if the launch of the margin trading business on China’smarket liquidity has improved is still up in the air.The second chapter describes the development process and the condition of ourmargin trading business, and analyzes the development of several major countriesmargin model, in order to gain the inspiration to develop our margin trading business.The third chapter perform a theoretical analysis of the margin trading business on thestock market liquidity impact mechanism.The forth chapter intends to select China’sShanghai and Shenzhen’s overall margin transactions as research subjects, which as acomprehensive analysis of the margin trading business of securities market. First,analytical data by event analysis method answered the question that if the impact onliquidity of securities exists. After confirming the premise of that impact exists, thenhaving an in-depth research by VAR model on the effects mechanism of the margintrading to liquidity. According to the results combined with the current situation ofsecurities market, the paper proposed some Suggestions.Conclusions of this study are as follows: The margin trade had a positive impac ton liquidity of stock market, but the impact is still not large enough. Margin tradeaffecting the liquidity of the stock market in China is mainly reflected in m arginpurchase, the influence of short sell to liquidity on the stock market is not signific ant.According to the event analysis method, when the volume of margin purchase rises toa certain extent, the noticeable effect on liquidity disappear. Due to the low volume ofshort sell, short sell has little impact on liquidity of stock market. The imp rovement ofeach unit margin purchase to liquidity is bigger than each unit short sell.