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

In March 31th,2010, the margin trading business made its debut at the Chinese capital market. Investors can benefit more not only from borrowing money when they expect its price will rise, but also loan securities from security firms to profit when they expect its price will fall. The margin trading provides investors with new trading patterns and broadens profitable channels. In particularly, after the scope of underlying securities keeps expanding and the margin trading business turns normalization, the transaction size of margin trading continues to grow at a rapid pace, which will have a profound influence both on the stock market as well as our investors.The issue studies from theoretically to empirically research. In the theoretical part, firstly, this paper reviews relevant literatures about the influence of margin trading business on stock market, and describes some typical margin trading patterns. Secondly, based on the process of the margin trading business, we want to analyze how its operations impact on volatility and liquidity of the stock market.In the empirical research part, the issue explores from volatility and liquidity perspectives and mainly uses a series of empirical test methods in order to analyze the degree of influence between margin trading and the stock markets.According to the empirical results, we put forward policy recommendations for the development of margin trading business:increasing risk management; improving refinancing system; keeping balance between financing and short-selling; participants at all levels in this market must fully perform their functions and responsibilities, which is for reference.