The Influences Of Margin Trading On The Volatility Of Chinese Stock Market

On March 31,2010,our country formally introduced margin trading mechanism,ending a long time "unilateral market" situation,which opened a new era of credit transactions.As of July 31,2015,margin trading mechanism has been running for more than five years in our country,with the capacity of the underlying shares and refinancing mechanism's development,its impact on the stock market is further enhanced.However,in late June 2015,the stock market crash allowed us to re-examine the dual effect of margin trading.Did margin trading increase or decrease the volatility of the stock market?Scholars at home and abroad has yet to produce a consistent conclusion on this issue.In this paper,I study the impacts of margin trading on the stock market volatility after it running smoothly and spike.It has a certain theoretical and practical significance for China securities market system construction.This paper carried out studies from both theoretical and empirical aspects.In theory,I described the mechanisms and factors that margin trading influenced China security market volatility,such as scale,structure,trading rules.In empirical,I researched the influence of the whole market and individual stocks.Firstly,I investigated the margin trading influence by GARCH and VAR model,Granger causality test,impulse response function and variance decomposition from five aspects,such as overall effect,sub effect of margin purchase and short sale,underlying shares expansion,up or down market and the differences between stock index futures and margin trading.Secondly,I use the event study method,parametric and non-parametric test to study the differences in the underlying stock volatility.Finally,I put forward the corresponding policy recommendations which based on the above results and the actual situation.The first part of the empirical results showed that:the margin trading smooth the volatility of the stock market in our country and this inhibition existed a stable and gradual strengthening trend with the underlying shares expansion.But in a clear trend market(up or down),margin trading had further increased the volatility of the stock market.From a structural point of view,margin purchase and short sale both have reduced the volatility of the stock market,but this inhibition is more significant in margin purchase.Although stock index futures and margin trading are short selling mechanism,but their impact on the volatility of the stock market are differences both on the degree and direction.These results are related to our country's investor structure and the level of development of securities market.The second part of the empirical results showed that:the margin trading had a different effects on different types of the underlying stocks.On the influence degree,underlying stocks group with the larger circulation market value is greater than the smaller one,lower turnover rate group is greater than the higher one and the group previously existing short-selling constraint is greater than the no short-selling constraint one;On the influence direction,the regular pattern is not obvious,which needed a comprehensive judgment based on premiums,risk level,etc.