Impact Of Leveraged Funds On Stock Market Volatility

The leveraged funds in the securities market mainly come from margin financing and off-exchange capital allocation.The margin financing and off-exchange capital allocation are essentially the same and all of them are margin trading activities.The difference is that the margin financing and securities lending business is more standardized and the risks are controllable,while the off-market capital allocation business lacks corresponding legal norms and cannot be Effective supervision.In 2015,China's stock market experienced a “disaster”.From June 12 th to July 9th,the 1000 shares fell below the limit,and the Shanghai Composite Index fell from 5178.19 points to 3,421.53 points.In the middle of August,it again fell to 2850 points.The excessive influx of leveraged funds into the stock market is considered to be the “starter” of the current disaster.This article takes the “stock disaster” in 2015 as the entry point,and introduces the relationship between stock market abnormal fluctuations and leveraged funds from both macro and micro perspectives.It is believed that the stock market is a barometer of the national economy under the test of the transformation and upgrading of the real economy in China.However,it appears irrational and prosperous,and huge amounts of leveraged funds that are difficult to monitor have accumulated into the stock market to accumulate and magnify financial risks.Through empirical research on the balance of margin financing and securities stocks and stock market volatility,the results show that margin financing and securities lending was originally due to price discovery.The role of the stock market fluctuations have a deterrent effect,due to the existence of lag period,over time,the leverage of securities and stock markets on the gradual weakening of the stock market,but will exacerbate the volatility of the stock market.As another form of off-balance-sheet capitalization of leveraged funds,empirical research cannot be conducted because data are unavailable.However,in the case of unclear scale and insufficient risk assessment,the supervisory level adopts a “one size fits all” type of regulation that prohibits off-site capital allocation.It is considered to be the trigger for the “shares disaster”.Based on the analysis of off-exchange capital allocation,this paper believes that the fundamental problem of off-site capital allocation is that the supervisory layer cannot conduct penetrating supervision.Due to the existence of demand,the “one-size-fits-all” type of prohibition is not conducive to grooming off-site capital allocation.Risks caused.In the long run,margin financing and stock financing will aggravate stock market volatility,and guide the development of margin financing and securities lending business and strengthen supervision.The oversight of off-site capital allocation should draw on the U.S.regulation of over-the-counter allocations,ie,the U regulations.The key lies in adequate information disclosure and leverage control.The policy recommendations of this paper are: to strengthen the coordination between regulatory agencies to adapt to the current mixed business model;change the credit model to meet the needs of investors;the sun of asset management system will be off-site allocation of funds into the regulatory system.