The Impact Of Short Selling On The Volatility Of China’s Stock Market And Its Internal Mechanism

China’s stock market since its inception, long-term strict limits on individual stocks short business, the market has "only to do more, not short" unilateral city pattern. In March 2010, China officially implemented short selling short selling mechanism, improve the market trading system. The introduction of short selling and short selling, which provides a new profit model for investors, has created a new business area for securities brokers, and has raised the challenge to the risk control of the market system.The short selling mechanism in Europe and the United States and other mature capital market has been running for a long time, the study on the impact of the stock market volatility has been a controversial topic, the existing research results have not been determined. Based on China’s stock market, this paper studies the impact of short selling on the volatility of China’s stock market, and from the micro level to find the internal mechanism of this fluctuation.First of all, this paper uses the subject of short selling short selling of third times as the experimental sample, the fourth expansion of the stock as the control group, the study period is from September 19, 2014 to September 10, 2012, based on the historical volatility method to build a double difference model, and to examine the difference between the stock return and the standard deviation of the control group and the experimental group. Empirical results in Shanghai and Shenzhen stock markets double difference points estimator are significantly positive and show that margin trading and short selling transactions launched exacerbated the volatility of the stock market, and short selling of securities on Shenzhen stock market volatility increased greater than the Shanghai stock market.Secondly, from the perspective of behavioral finance, the internal mechanism of the volatility of the stock market is analyzed from the perspective of investor behavior. The purpose of the short selling and short selling is generally out of the motive of the investment, hedging, hedging or arbitrage. This paper mainly studies the effect of the investment and the short selling on short selling, and the hedge or arbitrage motivation, tax avoidance motivation as a control factor into the model, through the test of short selling short selling and the relationship between the past yield, to determine whether the short selling is a trend of investors. The empirical results show that the short selling short sellers will choose the stock of the past price falls, which belongs to the trend of investors, and short selling short selling will further lead to the stock price decline, thus increasing the volatility of the stock market. This from the micro level, the specific analysis of the internal mechanism of the stock market volatility.The conclusion of this paper is that the investors’ behavior is an important factor to increase the volatility of short selling and short selling, and the investors adopt different trading strategies. They have different effects on the information analysis. Therefore, the paper puts forward some suggestions to strengthen the transparency of short selling information, regulate the behavior of investors and establish risk response mechanism.