An Empirical Study On The Impact Of Margin Trading On Stock Price Volatility

Since the implementation of the margin trading in China on March 31,2010,the scope of the target stock of margin trading has continued to expand.The balance of the margin trading has also grown rapidly after the implementation of the business,and its impact on the stock market has become negligible.Especially when the stock market experienced a plunge in 2015,the market generally attributed the incentives of this stock market disaster to the leverage effect of credit transactions,which made the study of the impact of margin trading on stock price volatility has great practical significance.Margin trading is a double-edged sword.On the one hand,it can help to help better reflect market information,and provide investors with profitable investment tools when they hold a bearish attitude.On the other hand,due to the leverage effect of the margin mechanism,the risk in the market may be amplified,which will aggravate market volatility.In this paper,empirical research is conducted on two levels: market and individual stocks.At the market level,according to the different situation of stock market,it is divided into normal fluctuation period,rising period and falling period.The VAR model is constructed separately,and Granger causality test and impulse response analysis are carried out to study the mutual influence relationship between margin trading and the stock market volatility.At the individual stock level,using the conditions of natural experiments provided by the 2015 stock market volatility,difference in difference model was constructed to study the impact of the margin trading on the stock price volatility during the period of abnormal fluctuations,and the sub-intervals of abnormal fluctuation periods.From the empirical results,from the perspective of the entire stock market and individual stocks,mainly in the falling period,the margin trading will play a role in exacerbating the volatility of the stock market.The first reason is the irrational pursuit of investors when it comes to the fall in stock prices,and the second one is that the losses caused by the financing business caused the securities companies to forcefully sell the stocks,resulting in an increase in the stock supply in the stock market,causing the stock price to fall further.In the normal fluctuation period,margin trading can stabilize the volatility of the entire market.In the rising period,buying on margin will increase the volatility,and short selling will reduce the volatility.For individual stocks,during the entire period of abnormal fluctuations,margin trading contributes to the reduction of volatility,while it will increase volatility when stock price is dropping dramatically.Based on the conclusions drawn from the empirical results,this paper finally proposes targeted policy recommendations for the development of China's margin trading business,such as increase the number of rational investors and changing the unbalanced development of margin buying and short selling.