| Securities margin trading and short selling has developed for almost 5 years in China stock market, which had an impact on liquidity and volatility of the stock market by affecting the forces of demand and supply in the market. But whether is it increasing or reducing the liquidity and volatility, or whether is it having any affection on the liquidity and volatility of the market, the present study have different views. And in June 2015, the purchase on margin value decreased based on the consolidation of the stock market, and it made the stock market went down continuously. From this two points, the paper wanted to discuss the relationships between the margin trading and short selling and the liquidity and volatility of the stock market.The paper analyzed the concept of the margin trading and short selling, liquidity and volatility, and the relationship between the liquidity and volatility. Then the paper analyzed the way that the margin trading and short selling affects the liquidity and volatility. Next, the paper analyzed the present problem of today’s margin trading and short selling. In the empirical study, the paper used the data from Shanghai and Shenzhen stock market to discuss the relationships between the margin trading and short selling with the liquidity and volatility of the stock market, through GARCH, Cointegration test, Granger causality test, and VEC.The paper found that:firstly, margin trading and short selling can indeed increase the liquidity; secondly, the margin trading significantly increases the volatility, but the short selling has no affection on the volatility; Thirdly, the increase of liquidity can attract investors to do margin trading and short selling, and fourthly, the increase of volatility can reduce the short selling volume.At last, the paper combined the empirical results with the operating situation of China’s stock market, proposed several development recommendations, such as improve the margin trading and short selling system and avoid the concentration of risk, improve the securities market supervision, and improve the corporate withdraw mechanism., in order to build a better stock market environment and lowered the risk of margin trading and short selling. |
