The Impact Of Margin Trading On Volatility And Liquidity Of China’s Growth Enterprise Market

The introduction of Margin Trading not only ended the unilateral operation of China’s securities market, but also enriched the Trading mechanism. With the GEM stocks added to the list of margin in the underlying stock, investors can now use GEM stocks to do margin Trading. What kind of impact would this do to the GEM? This is currently the focus attention of investors and regulators.This paper Choose the GEM of China as the research object, firstly we analyzed the mechanisms of Margin Trading on the stock volatility and Liquidity. Then we make Empirical Analysis of the influence of margin trading on the individual stocks of GEM and the entire GEM. In the research of the individual stocks, by setting different event window period, we use event study method and Wilcoxon rank-sum test to verify whether the Volatility and Liquidity changed after the GEM stock was added to the list of margin in the underlying stock. In the research of the entire GEM, we use the theory of vector auto regression, Granger causality test, impulse response and variance decomposition to verify whether the margin trading business stabilized the market and improving liquidity. At the end, the paper also gives some policy suggestions for the development of Margin Trading based on the empirical study.The main contents and conclusions of this article are as followings:(1) The empirical result of individual stocks of GEM shows that the margin trading tends to increase the volatility and improve liquidity of the GEM stocks. With the event window period extended, the number of stock which the volatility and liquidity changed after added to the list of margin in the underlying stock increased. It indicates that allowing Margin Trading not only significantly increase the volatility and liquidity of individual stocks but also sustainable.(2) The empirical result of GEM, on one hand, shows that short purchases have no significant effect on the volatility of GEM, while short sales do have influence on the volatility of GEM, but the influence varies with time. On the other hand, it also shows that short purchases can improve liquidity of GEM, but short sales have no significant effect on the liquidity of GEM.