Study Of Margin Trading On Shanghai A-share Market Volatility

On March 31,2010, China formally started margin trading. In four years, it has got steady business growth, as the balances of margin trading at the Shanghai stock market has risen to 260 billion. Margin is an important long short mechanism on the stock market with financial leverage effect and the function of price discovery. How does margin trading affect the volatility of the stock market? This paper aims on the point for analysis.In this paper, SSE 180 Index is taken as the representative of the stock market. The work is carried out from the analysis of the short and long term relationships, causality and the yield volatility. Firstly, there is a long-run equilibrium relationship between SSE 180 Index and margin trading through co-integration test. On Granger causality test, margin trading is the Granger reason of SSE 180 index, SSE 180 index is not the Granger reason of margin trading. Secondly, a VAR model is established, and through impulse response function and variance decomposition analysis, it shows that margin trading reduces the volatility of the stock market to some extent and margin trading is important on SSE 180 Index in the contribution rate. For the SSE 180 Index yield series, a GARCH (1,1) model and EGARCH (1,1) model are established and a dummy variable is introduced. The result shows that margin trading reduces the volatility of the SSE 180 Index. In this paper, the conclusion is the introduction of margin trading reduces the volatility of Shanghai A-share market and can stabilize the market.