The Impact Of Margin Trading On The Liquidity And Volatility Of Stock Market In China Through Empirical Study

Since it was founded in1990, the stock market in China has made great development in just20years.However, the author affirms the development of China’s stock market performance, we also cannot ignore the shortcomings of the stock market.These drawbacks in the main is the Chinese stock market lack of short mechanism. At the beginning, the stock market of our country only has spot market, so investors can only profit by unilateral do more, and market information are serious asymmetric, profit-seeking nature of capital distorted the stock price, the price of some stocks far from its intrinsic value, share price volatility, market speculative atmosphere is serious, these seriously hindered the efficiency of Chinese stock market. On foreign mature securities markets, securities margin trading is one of the most basic business in the stock market, in theory, it can restrain the share price volatility and increase market liquidity, meets the demand of investors to diversify investments and other positive effects. So, it has long been expected to change the trading pattern of China’unilateral market’. Margin trading business in China has officially launched since March31,2010, it is a financial innovation after the split share structure reform. Margin trading is an innovation for China stock market, so its actual effect remains to be further tested. Margin trading of China has been more than four years since it officially launched, the underlying stocks has increased from the original more than90to the present more than700after three expansion, at the same time, the growth of margin balance is also very quickly. The expansion of underlying shares and the increase of margin trading provide an important opportunity to study margin trading impact on the performance of the stock market.This paper argues that effective securities market should present a higher liquidity and lower volatility, on the one hand, to meet the trading liquidity of the stock market function, on the other hand to ensure the stable operation of the securities market. Therefore, the liquidity and volatility are the two core indicators of stock market performance. In this context, this paper try to research the impact of financing the purchase amount and the amount of short selling on the liquidity and volatility of the Shanghai and Shenzhen300Index, then checks "margin trading impact on China’s stock market efficiency". In order to further improve our margin system, to promote stable and healthy development of stock market to provide the reference basis.Based on market perspective, this paper select the margin purchase amount and the short sales amount of Shanghai and Shenzhen Stock Market from November25,2011to March31,2014, this paper comprehensively uses a variety of econometric analysis methods,such as VAR model, impulse response function, Granger causality, etc.to Empirical research on the margin impact on stock market volatility and liquidity. The main conclusions of the study are as following:Firstly, the theoretical analysis shows that the margin can lower the stock price volatility. Margin trading is good for the stability of the market and the realization of the stock market price discovery function, but the effect of Short sale smaller than Margin purchase.Secondly, the empirical results show that Margin trading can enhance the liquidity of the stock market and the effect is remarkable. Short sale had no significant effect on the stock market liquidity.Based on the conclusions of the study, function of margin trading has been played, but the impact strength of Short sale is smaller than Margin purchase. This is mainly affected by the current development of the margin trading, margin trading system and investor psychology. According with the conclusions of the study, this paper shows some rational policies and recommendations for margin development:further expanding the margin trading business and gradually relaxing its limit; strengthening supervision more and regulating trade system; popularizing the knowledge of margin and advocating rational investment philosophy.