The Influence Of Margin Trading On Stock Market Through Empirical Study

On March31st2010, Margin trading made its debut on China’s security market, which is being widely discussed by the academia, they wondered if margin trading could really improve market function..At the moment that margin trading has been operated two years in China, The paper start to research margin trading’s influence on stock market based on the data of shanghai security market.Specifically speaking,the paper get to research from the two attributes of stock market,liquidity and fluctuation.Firstly,it summarized the related theories of margin trading’s market influence and put forward the research point; Secondly, through the introduction of margin trading’s investment characteristics,trading model,and the influence factors,measurements of market liquidity and volatility,so laid the theoretical foundation for the following empirical test;Thirdly,the paper made a detailed analysis of the influence mechanism between maging trading and stoct market’s liquidity,volatility whicn then lead to the paper’s key point,analyzed the situation of margin trading and market’s liquidity and volatility,explicated the influence direction through different empirical methods.Finally,according to the empirical results,combined with china’s situation, the paper put forward related suggestions from different angles.The papers concluded the following conclusions through the theoretical analysis and empirical studies:(1) The influence of margin on stock market’s volatility is consistent with the paper’s assumptions, margin trading is the granger cause of stock market volatility, it could lower the market volatility in certain extent, but the impulse response of the effect is not immediately displayed, in the initial stage of marging trading, china’s stock market volatility has been increased at first, then it began to reduced slowly with the development of marging trading.(2) The causality between margin trading and market volatility only exist in one way,margin trading is the granger cause of market volatility,but the market volatility is not the granger cause of margin trading.this is partly due to china’s special situation,our financial market development is not mature,market fluctuated too frequently,it made market traders more cautiously about the stock market,so it is hard for investors made their decisions about margin trading only judging by the volatility indexes.(3) The relationship between margin and stock market liquidity is not significant,margin is not the granger cause of market liquidity,and stock market liquidity is also not the granger cause of magin trading.there are so many influence factors of market liquidity,it may made the margin effects not significant,and from the level of margin operation,the supervision department in china added a lot of constraints on margin trading in order to avoid the risk which margin investments may bring.it turned out that china’s margin trading is too small,so it will relatively weakened margin’s influence on market liquidity.