The Influences Of Margin Trading On China’ Stock Market Liquidity Empirical Study

On March31,2010, China Securities Regulatory Commission officially pushed out the stock lending and borrowing business for Securities companies. The business completely broke the China Stock market which can only buy long and not short sell on the unilateral shorting the pattern. The introduction of stock lending and borrowing is not only play a stable role for the market, will also bring great opportunity for brokers. But this business can help to improve the entire market and individual stocks’liquidity, both for the mature market and emerging market it is a problem that needed further investigation.This paper introduced firstly the mechanism of the influence for the stock lending and borrowing and the stock market liquidity. Then, selecting the period of time from March31,2010to July5,2011account to34sample dates and using event study to analyzed the stock lending and borrowing business and pilot brokers in the formal operation that impacted to the whole stock market and industry stocks’liquidity. Based on the SCRC Industry Classification Standard and the conclusion of event study, we adopted the VAR models and Granger causality test methods and studied the influence of the margin trading to the stock market and industry liquidity by choosing11stocks representative of the industry. According to the results combined with the current situation of China’s stock market, the paper proposed some Suggestions.The main contents conclusions of this article are as followings:1. Because of the China’s stock market pushed out the stock lending and borrowing business in a shorter time, the stock lending and borrowing business had influence on the liquidity in China stock market by the theoretical analysis. But the influence degree of liquidity was limited.2. Using event study to analyzed the effect of the individual stocks liquidity on stock lending and borrowing businesses, the result showed that the stock lending and borrowing businesses will enhance the liquidity of the stock market and individual stock. However, the pilot securities firms had little effect on liquidity. With the pilot batch of brokers increasing, influence on the role of liquidity was abating. The stock lending and borrowing businesses influenced on the liquidity are larger than the pilot securities.3. The buy long margin transaction volume of margin trading was very small, so focused on the buy long margin transaction impacted on liquidity was more practical significance in China.(1) Buy long margin transaction was the Granger causality of market liquidity changed, but "Zhongtie stock" wasn’t the Granger causality of stock liquidity changed. In11stocks,54%of stocks of industry representatives refused the null hypothesis of that Buy long margin transaction is not the Granger causality of liquidity changed.(2) Buy long margin transaction played relatively weakness on stock market and industry stocks liquidity, that not only the nature of the impulse response function, but also in the variance decomposition. Whether it is stock market liquidity, or liquidity of the industry, the changes were mainly from its impaction.4. From the standpoint of the institution, supervision, brokers and investors, combined with above empirical conclusions, some relevant advice on stock lending and borrowing businesses were given.