Research On The Impact Of Refinancing Mechanism On Stock Market’s Liquidity And Volatility

In capital market,margin trading and short selling have a long history.This mechanism can facilitate financing function of stock market,which is also regarded as an important symbol of capital market’s development level.A-share market in China had been restricted to doing long-only trades and using no leverage since 1990,which made A-share stock market’s systematic risk difficult to control.In 2010,margin trading and short selling became legal,however the qualified stocks were limited both in number and scale.In 2012,refinancing mechanism was permitted.Increasing borrowing and short selling volume loomed.But the academia has not reached an agreement on the consequences of introducing of refinancing mechanism on capital market’s liquidity and volatility.At the same time,China’s capital market is experiencing a transform.Extant researches are majorly set their focus on western markets.Based on the empirical data,this study conducted positive analysis on the impact of refinancing mechanism on market liquidity and volatility in the context of China’s institutional background.This paper based on the literature review which analyzes related research results at home and abroad and make synthetization in order to develop our research hypotheses.Then conduct theoretical study of China version margin trading and short selling in a transforming context.At last empirical studies are guided to verify the aforementioned hypotheses.The main findings are as follows:(1)Under the refinancing system margin trading and short selling improved stock market’s liquidity significantly.At the same time,compared to short selling,margin trading created much larger fluctuations.The mechanism is that margin trading provides markets more trading volume which enhanced market liquidity.(2)Short selling significantly reduced market volatility and stabilized the capital market,while margin trading did an opposite job.In addition,empirical results also show that the refinancing mechanism do enhanced market stability.However,due to the limited scale of short selling,the marginal impact of market stabilization of short selling is still constrained.