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

Since March 31,2010,the opening of margin trading,the effects of margin trading on the stock market is one of the most popular directions on related fields.Whether the effects of margin trading on the stock market are to reduce volatility of the market,has been the subject of much discussion and academic interest over the years.Margin trading is widely used in a mature financial market.Margin trading,in theory,could augment liquidity and reduce volatility of the market.With margin trading opening to investors,securities firms could make more profit and meet the needs of building a multi-layer securities market.However,margin trading enlarges market risk meanwhile.In the paper,daily data of margin trading and HS300 index from 2010 to 2017 is employed as research sample.Liquidity and volatility are the factors selected to explore the effects of margin trading on stock market,using VAR model and Granger causality test method to analyze the effects of margin trading on the stock market.In the end of 2012,the launch of refinancing presented strong guarantee for money and securities of securities firms and promote the development of margin trading.The development is closely related to the policy of the market.The rule of margin trading changed in August 4th,2015,which has an effect on securities loan.VAR modeling of these three stages of margin trading,find out that margin trading significantly affects the liquidity and volatility with different levels.The conclusion is that margin trading could increase liquidity and decrease volatility,while restricting margin trading is on the contrary.In the paper,the reasons for this are discussed and suggestions on how to utilize the price discovery function and how to reduce volatility of stock market of margin are given.