Margin Impact On Liquidity And Volatility Of China’s Stock Market

In Chinese securities market, the introduction of securities margin trading has been five years, whose impact on the stock market is becoming more and more obvious. The securities margin trading could be seen as the barometer of the stock market just as the stock market is to the economy. As to the relationship between securities margin trading and the stock market, although many scholars have done a lot of research, there still exists great difference in the aspect of theories and demonstration.On the basis of combing and drawing lessons from existing research results, Shanghai Stock Exchange and Shenzhen Stock Exchange are choosed as the research object in this paper. As a representative, through analyzing the liquidity and volatility of CSI 300 from a new perspective, the effects of securities margin trading on the Chinese stock market is deeply researched, in order to provide some experience and reference for further research and development. After the introduction of margin trading in Shanghai and Shenzhen, the operational state of CSI 300 fluctuates greatly. In order to study the securities margin trading’s impact on liquidity and volatility of the stock market in different stages, this paper selects the day trading data as sample since its lanching, namely from March 31,2010 to March 9,2016. Meanwhile, these data are divided into three different stages, i.e. the pilot stage, stationary stage and volatile stage, and are studied respectively. Given the turnover rate and the variance fitted out from GARCH model as the index of liquidity and vo latility respectively, through a series of methods, such as building the VAR model, Granger causality test, impulse response and variance decomposition, the effects of securities margin trading on the liquidity and volatility of stock market is empirically researched.The research conclusion are drawn as follows: There is a long-term and co-integration relationship between margin trading and the volatility and liquidity of stock market. Margin can stabilize the fluctuations of Chinese stock market and accelerate its liquidity at the same time. The equity trading has a greater effect on volatility than short selling trade, otherwise, short selling trade produces a greater impact on liquidity than equity trading.