Margin Trading And Stock Market Volatility

Since the pilot of margin trading in China,the security market prices rise and fall by the time.Actually,in the second half of 2014,the price rise so fast that it almost doubled in six months.A fact is that these volatilities in the security market always followed by the development of margin trading.As a trading mechanism,margin trading and market volatility are closely related.But the way they affect each other has a great controversy in academic area.So a deep research about this question will help us develop the security market healthily and stably by making best use of margin trading.And it also help investors get more profit by using this trading mechanism.Therefore,we take the actual data of Chinese stock market to research the volatility of the stock market in our country by using empirical methods.Especially we research th relationship of the margin trading and the market volatility.We use the quantitative economics method of GARCH model and VAR model as our analysis framework.Our results show that,margin trading and volatility influence each other all the time.Comparing to short-selling,short-buying's influence was stronger.But in general,whether it is short-buying or short-selling,its impact on volatility is very small.In addition,the expansion of underlying securities margin has a little influence on market volatility.By analyzing the reasons,this paper puts forward some reasonable suggestions:first,increase the number of underlying securities;second,to improve market's activity,we need to reduce trading friction,such as reducing interest rates,simplifying rules;third,to supervise and promote the balanced development of short-buying and short-selling,without this balance,margin trading can play its roles,and the market essentially would be a single market.