Empirical Study On The Influences Of Margin Trading On China’s Stock Market

The expansion of securities margin trading added fresh vitality for the rapidly development of our country securities market. On 31 March 2010, our country started to implement pilot securities margin trading business. The introducing of refinancing operations in 2011 marked our country securities margin trading entered into the stage of normal operation. At the next few years, our country securities refinancing pilots coverage range has further expansion. One nature of Margin trading system is that, investors take advantage of the time value to get more profit. On the other side, it is an effective tool for the government to take macro-control of the whole market, and the trading system itself has the function which can promote market to be more stable and active. Security margin trading is considered as a great innovation since the reform of non-tradable shares in the capital market in China. It is a landmark for perfecting the basic functions, enhancing the efficiency of funds and improving the development of capital market. Factors which affected by the stock market is more complex, the margin trading business in china has experienced a long blank period, which is now driving forward to be more international and maturity. As a new financial instrument, margin can play to the leverage effect, on one hand, to speed up the earnings of hedging, attract investment, active market, on the other hand, it can magnify gains and at the same time, it will increase the potential risks of investment. In other words, securities margin trading is a high-yield high-risk financial management method, but whether the introduction and implementation of the system can finally have a positive impact on Chinese stock market should be researched further more.In this article, the impacts of securities margin trading, referring margin loan and stock loan, to the liquidity and volatility of stock market are investigated with the analysis of Granger causality, impulse response and analysis of variance (ANOVA) by EVIEWS statistical software. The investigation is based on the Shanghai and Shenzhen 300 index and daily exchange data over a 4-year period of securities margin trading, between April 2010 and April 2014. In the investigation, the volatility and liquidity of stock market are specifically analyzed with the indicators of logarithmic balance of closing prices and turnover rate by the Vector Autoregression model (VAR). It has been found in the investigation that securities margin trading effectively stabilises the exchange rate and generates liquidity of Chinese stock market. Specific results shows that the volatility of stock market is closely related to the period of securities margin trading. Short-term securities margin trading exacerbates the volatility, while the long-term one has the stabilising effect. The buying long on margin loan shows more effectively impact on the volatility of stock market, while the selling short on stock loan impacts the less. Furthermore, circular cumulative causation has been observed between securities margin trading and the volatility of stock market. The circular cumulative causation of securities margin trading is positive and unidirectional to thevolatility of stock market. The article is based on the individual influence of margin trading system on the stock market. frequency of price fluctuations, the quantity and efficiency of shares in the market are complex, frequent, and varied. Therefore, the way of the stock market on affecting the margin business, will not be repeated in this article.Furthermore, the trading volume of stock loan short selling is quiet low than the volume of margin loan buy long. The influence of stock loan is lower than margin loan on the stock market. The securities market of our country is still in a state of short selling and buying long imbalances. For this research conclusion, this paper analyzes the reasons of the existence of this phenomenon, and provide some policy suggestion from the view of development,for how to expand the scope of short selling and buying long business, improve the credit guarantee system and guide rational investment behavior.