The Impact Of Margin Trading On Volatility And Liquidity Of Shanghai Stock Market

With the development of the capital market,margin trading has been placed on the agenda as one of the financial innovation.From March 31,2010,both Shanghai and Shenzhen Stock Exchange began to accept margin trading declaration from pilot security companies,making the formal entry into the market operation.As a basic credit trading system,margin trading has changed the unbalanced unilateral market,with controversy of what kind of impact short selling will bring to the market liquidity and volatility.In order to explore the role of margin selling,the paper used event study,combined with the control analysis and Wilcoxon rank sum test to make research on individual stocks and Shanghai stock market.The results showed that in bull market and bear market,margin trading could enhance the liquidity and reduce volatility,while in market shocks,the impact was different.To explore the causes,this paper used factor analysis,Granger causality test,VAR model,impulse response analysis and variance decomposition analysis to explore the factors.The results showed that increase of financing intensity and investors' emotion could increase liquidity,the same was for margin structure and financing intensity to volatility,while increase trade size or investors' emotion would decrease volatility.Finally,based on the analysis of the results,tried to make some suggestions to improve margin trading and the relevant regulatory policy.