Analysis Of The Function Of The Short Selling Mechanism Of The Stock Markets Of China

Nowadays, the stock markets of China becomes integrated into the challenge of the international rules.So the innovation and perfection of the transaction system allows of no delay.The margin purchases and short sale transaction was implemented on the 31st March 2010 .It marks A share market of China beginning with the bilateral market and apart from the single market.The short selling mechanism is a newborn market system for the stock markets of China,whoes relevant regulations and execution effect directly influence the stability and development of the capital market. The stock market of China undertake the short selling system , which created wide comment in this field. Theoretically, the Short Selling System of stock market can reduce the market volatility, provide liquidity and fuction price discovery. Also the scholar thinks to the short selling system of stock market can magnify supply and demand and lead to market ineffectiveness,because securities market in China is not mature.The running status and its influence has not to be accomplished in the literature. The time of establishing the short selling system still short,so no studies have been made and the yes-no conclusions have been on the function plays a positive role or negative influence. The purpose of this paper analysis it .This paper use the data of IF300 index, margin trading and Stock Index Future for Empirical Research.First,this paper introduces the history and problems of the short selling system and looks into the causes.Second,we analysis on before and after the implementation of the Short Selling System of stock market in China. The results show that the liquidity of the market increases abnormally after establishing short selling mechanism in China.Then, we use VaR(value at risk)as the main risk measure and evaluate it by the quartile regression model, found the VaR has decreased markedly since short selling mechanism launch.Third,we use of arbitrage pricing theory combinatting of stock index future market data,and find that stock index future market is overvalued for long. In the upshot,we use a VAR model for analysis on the impact of establishing short selling mechanism upon the volatility and liquidity of the A Stock Market and the mispricing of the Stock Index Future. It indicated that the turn-over of the margin purchases and short sales have a long-term associations with the volatility and the liquidity,but without the mispricing by cointegration test; the volatility and the liquidity has the bidirectional Granger causality relation with the turn-over of the margin purchases,but without the short sales; the turn-over of the margin purchases and short sales have effect on the the volatility, the liquidity and the mispricing by the impuls response function method. To sum up the above arguments,we found that the short selling system of stock market reduces the market volatility and provides liquidity,but fuction price discovery weakly.In addition, short-purchasing transactions make more contribution than short-selling transaction now ,and this restraints the fuctuion of the Short Selling System.Finally, this article analyze the reform measures aiming at the above problems.