The Impact Of Margin Trading On Liquidity And Volatility Of Security Market

Shanghai and Shenzhen stock market officially accepted margin trading application on 31 March 2010, marking the launch of pilot margin trading business. On 30 August 2012, margin trading accessed a common stage from the pilot stage. By 17 March 2015, margin trading has been developing for 5 years in China. Despite the rapid progress, there are still many problems in this business. Moreover, there are uncertainties on what effect margin trading had on the quality of China’s stock market and how it affected the market’s liquidity and volatility. Given this, based on the analysis to margin trading theory and the study to previous literature, this thesis took Shanghai Composite Index of the past five years since margin trading was carried out and studied the effect margin trading mechanism had on the liquidity and volatility of stock market systematically and precisely through specific demonstration model. This thesis further divided the complete sample into constant increase phrase and constant decrease phrase based on the trend of stock price fluctuation and thus made a more comprehensive study.At last, on the basis of the main challenges margin trading has met and the conclusion from the demonstration part, this thesis gave some suggestions on driving a sustainable and stable development of margin trading business, expecting improving policies, rules and regulations concerning margin trading business and enhancing the liquidity and stability of the stock market, including promoting refinancing business and lowering the access threshold of the margin trading business.