Empirical Study On The Effects Of Margin Trading On Stock Market Volatility

On March 31 st,2010,margin trading system officially launched in China,which marked the ending of the single market.Undoubtedly,unilateral transaction limits Securities' elasticity of supply and demand that is likely to cause stock market fluctuation.However.Researchers have different views on whether short selling mechanism can improve market efficiency and lower fluctuation of stock market.Therefore,with the current situation and empirical data of China's stock market,this paper makes a study on whether margin trading has a good impact on stock market fluctuation in China.This paper analyzes the relation between margin trading and stock market volatility through GARCH and VAR Model.On one hand,GARCH is mainly used to study influence of margin trading on China's stock market from an overall perspective.With dummy variables,it compares the market volatility before and after the introduction of margin trading system,and concludes that the system intensifies the fluctuation.On the other hand,through Granger Test,Impulse Response and Variance Decomposition,VAR makes a concrete research about the magnitudes and directions of margin purchase and short sale's effects on fluctuation.The result shows that both margin trading and short selling are the Granger cause of stock market fluctuation and have slightly increased the fluctuation.Based on the empirical result,according to national conditions of China,this paper puts forward the relevant policy suggestions which include further enhancing margin trading systems like margin rule and uptick rule,strengthening market information disclosure,continuously improving monitoring innovation and optimizing the structure of investors for rational investments.