| During the second half of 2014 to July 2015 China's stock market experienced a suddenly rise and a crash.A catastrophic plunge of general market indices was followed on an increasing and seemingly booming market.However,from June 2015,volatility of China's major stock markets has risen,along with which the liquidity deteriorated and primary stock indices plunged.It was uncommon to witness the crash because of its broad and significant influence on China's security market.The plunge trigger panic of the market,margin trading and short selling was criticized as the major cause of the abnormal fluctuation.However,was it appropriate to regard margin trading as culprit of stock market crash? What role did margin trading play in the abnormal fluctuation? By researching on the cause and effect of this crash,this paper analyzes the influence of short selling.Among five short selling channels,unregulated over-the-counter channel was impetus of suddenly rise and crash,while margin trading was not a prominent reason considering its volume,leverage and risk control mechanism.This paper investigates the impact of regulation that removes margin trading constrains on China's A-share liquidity.By using difference-in-difference(DID)model,it is found that a significant improvement in liquidity measurement after the introduction and subsequent expansion of short selling and margin buying.Meanwhile,the liquidity measures of marginal securities in Shanghai stock market increase to a larger degree than that of in Shenzhen stock market.Moreover,the degree of improvement in liquidity measurement varies in different treatment period.A possible explanation for this result is the effect of stock market trend and investor's reluctance to invest in marginal securities.Based on theoretical exposition and empirical research,this paper makes some suggestions for short selling and margin trading in China's stock market after summarizing the causes and effects the stock market crash. |
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