The Study Of Stock Market Volatility And Liquidity Affect About Margin Trading In China

Securities margin trading is an activity that investors can borrow money to buy securities or borrow securities to sell from the qualified securities companies and that securities companies charge investors for security deposit. Securities margin trading has four functions, which are promoting price discovery, stabilizing the market, enhancing market liquidity and hedging function. And this paper focused on market stability and market liquidity enhancement function.Securities margin trading began in 1607,Amsterdam Stock Exchange, which has been running for more than 400 years. Because of Chinese capital market's late starting, Securities margin trading has still been forbidden before 2005. Until 2006, Securities margin trading has been permitted. In 2008, the launch of Securities margin trading pilot was announced China Securities Regulatory Commission. After about four years of serious preparation, China finally started Securities margin trading on March 31,2010, which means the 20 years of "single market" eventually became history and China began a new era of "bilateral market". In the pilot phase of margin trading, the underlying stocks were only 90 and the scale of Securities margin trading was small. On November 25,2011, the margin trading was transferred to regular trading operation, and scope of the underlying securities began to expand. After four times of expansion in underlying securities, securities margin trading in China now have 912 trading securities.Securities margin trading is a "double-edged sword". On the one hand, as a support mechanisms of stock market, the important of Securities margin trading is improving gradually. Securities margin trading can stabilize the market and enhance market liquidity. On the other hand, the leverage of Securities margin trading increases the risk, which may cause illegal operation, chaotic market order and increase the systemic risk.In China, the development of securities margin trading has attracted wide attention. Since July 2014, with the rapid development of securities margin balance, the stock market of China began to pick up. On June 2016, the Shanghai index exceeded 5000 points. However, after Dragon Boat Festival, the stock market began to crash, which once fell below 4,000 points. In fact, in the rising and falling of the stock market, securities margin trading has played a role in boosting. Theoretically, securities margin trading can inhibit the fluctuation of the stock market, stabilize the stock market and enhance the market liquidity. But the current round of stock market's rising and falling refers that securities margin trading has played a role in boosting. Therefore, this paper test how securities margin trading affect the market volatility and market liquidity by empirical method.This paper selects the CSI 300 Index as the basis for a measure of stock market volatility and liquidity variables. And the interval research is from March 3,2014 to December 31,2015. Compared with multiple indicators of volatility and liquidity indicators, this paper finally chooses the market volatility index to measure stock market volatility, and chooses the ratio of total amount of transactions with index and the yield ratio to measure market liquidity.This paper sets the balance of Margin purchase, the balance of Short Sale, stock market volatility and stock market liquidity as variables and conduct ADF test, Johansen cointegration test and Granger causality test. By the result of empirical test, we concluded that securities margin trading enhanced the liquidity of stock market and exacerbated the stock market volatility. The main reason for this result is that investors are irrational and lack of understanding of securities margin trading; the underlying securities of margin trading are limited and the scale of short sale is low; capital of Secondary markets runs margin trading and disturb the market order; margin trading system is not perfect and supervision dose not do well. So we propose the following recommendations:first, to increase the propaganda of margin trading and change investment philosophy; second, appropriately expand the underlying securities of margin trading, enrich the kind and source of short sale securities; third, accelerated the development of transfer intermediation business and promote the balanced development of margin trading; fourth, limit the capital of off-site and other non-standard leveraged trading; fifth, improve the trading rules and regulatory system of margin trading.