The Impact Of Margin Trading System On Chinese Stock Market Volatility

Before 1990,64%in developed countries and regions is to allow short-selling,but by 2002,the proportion rose to 95%.Compared to the rapid popularization of short selling system in developed countries and districts,developing economies grew relatively slow,only rose from 10%to 31%.Thus,mature market has a growing preference for the margin trading system.Meanwhile,developing countries need to gradually abolish financial repression,encourage financial innovation,constantly improve security market trading mechanism.Whether to relax the restriction of short selling can be said to be an important standard to evaluate the development level of the financial market in an economy.In consideration of home,China's stock market has developed rapidly since the establishment of Shanghai and Shenzhen stock exchange in 1990.Margin trading underlying stocks rose from only 90 that were initially traded to 971 at the beginning of 2018,volume from less than 10 million yuan on the first day of trading to over a trillion yuan since 2018.The types of stocks listed for margin trading and daily trading volume are frequently reaching record highs,and its influence on China's stock market and even the entire financial industry is increasing day by day.In this context,it is of great academic and practical value to discuss the effect of margin trading on the volatility of China's stock market.The structure of this paper is as follows:firstly,it reviews the research results of domestic and foreign scholars on the impact of margin trading and short selling on stock market volatility,and roughly divides the research conclusions in this field into three categories.Margin trading reduces the volatility of the stock market;Margin trading raises the volatility of the stock market;Margin trading is not correlated with volatility or the direction of the impact is unclear.The second part explains the concept of margin trading,features of margin trading compared to ordinary securities trading,functions of margin trading in the financial market,and modes of margin trading adopted by major economies in the world.It also briefly introduces the development process of margin trading in China.The third part mainly introduces the theory of short selling,including noise trading theory,"overvaluation" model and Verrecchia's rational expectations model.On the basis of the above theory,the transmission mechanism of short-selling to security market volatility are analyzed in detail,including positive effect mechanism and negative effect mechanism.The fourth part is the empirical research,considering the sequence of yield of the volatility has the characteristics of non-normal,rush thick tail,this article uses GRACH model to fit the volatility of the stock market in our country.Meanwhile,it modifies the model by containing virtual variabledt,respectively reflect recent underlying change before and after the expansion.Afterwards,the fitting results as a measure of Chinese stock market volatility parameters,again with the volume of margin trading constitute vector error correction model(VEC),At length,using impulse response analysis and variance decomposition,this paper studies the effect of the change of margin purchase and margin sale on the volatility of Chinese stock market.In the fifth part,policy suggestions are given according to the empirical research results and the actual situation of Chinese market,and the future research is prospected.The main conclusions of this paper are:(1)The coefficients of the policy change dummy variablesD1,D2,D2in the modified GARCH-M model are all negative,which indicates that the price volatility of China's stock market becomes stable after the expansion of margin and short selling.You can also find that the absolute value of ?i is not large,which means that the effect of short selling on stock market fluctuations is still very limited.(2)There is a long-term and stable co-integration relationship between financing balance,margin balance and volatility index.In the long term,the financing balance is positively correlated with the volatility,which increases the volatility of the stock market;the margin balances are negatively correlated with volatility,smoothing the volatility of the stock market.(3)LNRQ and LNRZ are both Granger reasons of the volatility index VOL A,that is to say,the balance of financing and short selling will affect the volatility of the stock market,and they have a statistical causal relationship.(4)From the perspective of impulse response analysis,after the short-term impact of the financing and short selling variables on the volatility variable by one unit,the value of the impulse function falls below zero,indicating that the short-term impact result is negative.