The Study Of Margin Impact On Chinese Stoek Volatility

On February28th2013, China launched pilot programs on margin financing formally and comprehensively. Margin financing is an important part in the development of security financing, serving as the supporting mechanism in security trading conducted by security corporations. Meanwhile, margin financing can also develop short-sale trades to enlarge the scale of security financing, improve the structure of unilateral trading, and stabilize stock market. Margin financing is closely related to the volatility of stock market, thus empirical analysis of the influence on the volatility of stock market by margin financing is vital to developments academically and practically.This article, using the pilot programs on margin financing as the entry point, mainly analyzes contractively whether or not the launch of margin financing will have an impact on stock market’s volatility and what the potential impacts would be, in order to judge whether the expectation by regulation authorities that the margin financing can stabilize stock market via short-sale mechanism is correct. On the basis of references to related articles and theoretical research, this article takes on empirical analysis in short term and long term respectively. In the short term, the statistics within one year of the launch of marginal financing are selected to establish classical OLS regression model, and Granger Causality Test, ARCH test are chosen to conduct empirical tests. In the long run, the sample range is extended forward, and dummy variables are introduced in GARCH model to conduct tests and estimations.It is discovered by empirical research that in the short term, finance transactions tend to increase the stock price index, which is possibly the Granger reason to cause stock market volatile; however, security trading tend to bring down the stock price index, and there is no distinctive causality between security trading and volatility of stock market; in the long run, the launch of margin financing can reduce volatility of stock market in China to some extent, showing its potential function in stabilizing prices, but its impact is not obvious. This indicates that current situation hasn’t lived up to the expectations by the State Council and regulation authorities. To promote the development of security financing in the future, it calls for us to start setting up the notion of bilateral trade, deregulate risk properly, and establish a benign environment for stock markets eventually.