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

Securities margin trading is a fundamental trading system which mostly appears in developed capital markets and is widely considered to be able to stabilize stock prices,increase market liquidity,create new profits for the brokerage business as well as help establish a multi-level capital market.Nevertheless,margin trading brings the capital markets negative effects,such as risk amplification and market volatility increases.As securities margin trading have been seen as an effective and significant tool in the financial area,there is a debate about the issue of securities margin trading and to what extent it affects the capital markets performances.Margin trading was lately introduced to China and until March 31,2010,it started to be used as a new tool in market formally.However,over the last two years,margin trading has been developing rapidly that the trading amount in the Shanghai and Shenzhen markets is at a record high and its impacts on market is increasing.This essay is an attempt to figure out the relationship between the securities margin trading business and volatility and liquidity of China's A-share market.Based on the economics implications and theory of margin trading and market quality,we adopt both qualitative analysis and quantitative analysis in our rese arch.After summarizing the past theoretical literature,we decide to make hypothesis f rom two angles,market volatility and liquidity.Then on the basis of market data,we s elect to use vector VAR to present the empirical results.And the results show that long-term equilibrium relationship exists between margin trading and volatility and liquidity of A-share market.Empirical results show that the influence of short selling to market volatility and the influence of leveraged buyouts to market liquidity are consistent with the hypothesis.But in contrast,the empirical results also deny the hypothesis that leveraged buyouts decrease market volatility and short selling increase market liquidity.In the last part of this essay,we put the current circumstances of A-share market into consideration and analyses the empirical results.Based on that,we propose the corresponding policy for margin trading to assist in completing the stock market margin trading system and make the stock market more stable and health.