An Empirical Study Of Margin Trading Liquidity And Volatility Of The Impact Of China's Stock Market

China's stock market has developed for 26 years since established in 1990. So far, China's stock market not only occupies an important position in global stock market in term of market capacity and becomes a greatly influential capital market, but also builds an important platform where China's excellent enterprises obtain direct financing. With the development of China's stock market, however, the absence of two melting mechanism exerts a greatly obstructive effect on health cultivation of China's stock market. The growth and innovation of China's financial market are severely restricted because stock market is not able to form a complete system. Securities margin trading is one of the most basic businesses of foreign developed securities markets and it can reduce the fluctuation of share price and increase the liquidity of stock market. The research conclusion of the effect that securities margin trading exerts on securities markets does not reach a consensus and is still controversial in foreign academia. As an innovative business of China introduced in 2010, the effect that securities margin trading exerts on the fluctuation and liquidity of China's stock market needs further research. Therefore, this paper studies the effect empirically that securities margin trading exerts on the fluctuation and liquidity of China's stock market, using VAR model, causality test and other econometric analysis methods comprehensively and based on the financing purchases, securities sold quantity and the CSI 300 index of Shanghai stock market and Shenzhen stock market from March 3, 2014 to March 1, 2016. The research conclusion is as follows. Firstly, financing transactions can increase the liquidity of stock markets, whereas securities lending transactions exert no significant effect on it. Secondly, securities margin trading can reduce the fluctuation of stock markets, whereas securities lending transactions exert smaller effect than securities lending transactions. The research conclusion shows that securities margin trading has exerted positive effect on stock markets in China, whereas securities lending transactions exert smaller effect than securities lending transactions. That is greatly related to the development course, trading system and investors trade pattern of China's securities margin trading. Finally, based on the empirical analysis result, this paper offers related policy suggestions in terms of improving the system of trading, securities regulation, investor education and etc, in order to enable China's securities margin trading to promote healthy, stable and efficient development of China's stock market better.