The Effects Of Securities Margin Trading On China's Stock Market Volatility

Securities margin trading,also known as "securities credit transactions" or margin trading,is refers to that the investors provide collateral to the securities companies who have qualification of securities lending and borrowing business,borrowing money to buy securities(financing transactions)or borrowing securities and selling(securities transaction).It includes the securities financing,securities to investors and financial institutions to the financing,securities brokerage.On a world scale,securities margin system is a basic system of credit transactions.In terms of the experiences in the developed countries,the margin trading has the function of price discovery,Market stability,liquidity enhancement and risk management.It is of great significance to the development of securities market.China officially launched margin trading on March 31,2010.It means that the development of securities market in China goes into a new stage.With the high-speed development of Chinese stock market,the market turnover of securities margin trading is increasing dramatically.The margin trading influence the stock market mainly by the leverage effect.Investors only need to pay the deposit to the broker to Engaged in the securities credit transactions,which affect the demand for securities,will further affect the price.In mature markets,the margin trading play a role on the stability of the securities market by the leverage effect.But in market where the regulation is weak and the investors are not mature,the leverage function of margin can increase the market volatility.Conversely,even cause financial bubbles.When the Share prices showed a sharp change and the investors buying the winners in succession,the leverage effect of margin will further increase the share price volatility,which is not conducive to the stability of the market.In late 2014,due to the crazy rise of brokerage shares,the market structure became very unstable.During December 2014 and January 2015,the market is almost in violent oscillation.Brokerage stocks rose sharply raised market mania,accompanied by the use of leverage fund,the price of brokerage stocks and index volatility is increasing dramatically.In the first half of 2015,China's stock market ushered in a wave of "mad cow",accompanied by,margin balance is also swelling.However,in the second half of 2015,China's stock market form a downward trend,from the "mad cow" to "crazy bear",the margin balance also fallen quickly.It is thought that one of the important reasons of Chinese "mad cow"-stock market is the excessive use of leverage,and it is the same with the "lightning bear"-stock market.The very high level of leverage is a double-edged sword.What is the influence of margin trading on the stock market?The margin trading whether contributed to the volatility of the market,this problem has always been controversial in academic circles.This paper analyzed the mechanism of margin impact on Chinese stock market volatility,and expounded the development present situation of securities margin trading.Also,it analyzed the factors of margin trading influence on stock market volatility,and focused on the mechanism of margin impact on stock market volatility from both positive and negative aspects.The empirical part selected the daily data of the Shanghai composite index and the securities margin trading from January 1,2014 to January 26,2016 as sample,first explored the relationship between Shanghai composite index and Margin balance,established a linear regression model.Then the paper studied the impact of margin trading on China's securities market's volatility,and used the daily logarithmic volatilities of Shanghai composite index as the share price volatility,tested the sequence by normality test,stability inspection and the ARCH effect examination.The results of empirical research show that,logarithmic volatility sequences have conditional heteroscedasticity,so this paper used the GARCH model to correct.We add the financing balance sequence and the securities balance sequence in the variance equation of the GARCH(1,1)model,and judge the influence degree and direction of margin trading on China's securities market's volatility through its coefficient and significance.Study found that the impact of financing transactions on stock price volatility is more significant,but the data from the absolute value is very small,the enhancement effect is weak,while the securities transaction has no significant effect on stock price volatility.Combined with the experience and data analysis we found that the size limitation of the securities margin trading development,relative lag of the development of securities business and the not sound securities market in China may be the main reasons.According to the empirical analysis results,we put forward several related policy proposals:further enlarge the scope of the underlying securities,increase its'varieties and levels;Adjust trading system to make the securities margin play a support role in price discovery;Cultivate the short concept of investors;Vigorously promote the building of "refinancing" system;To strengthen the internal system construction of the securities company;Actively promote the margin credit system construction.This paper further adopted the method of correlation analysis to conclude that there is a regular correlation between securities margin in China and the flow index of the stock market.Future research can expand research dimensions according to the study,so as to explore the relationship between Chinese securities margin market and the stock market more deeply.In addition,attempting to put stock index futures and securities margin into the same model,analyzing their respective influence in the short-mechanism,comparing the pros and cons of different short tools,and exploring the perfecting mechanism,is also one of the research directions this paper to improve.