An Empirical Study On The Relationship Of Net Margin Trading And Stock Prices

Since Chinese stock exchanges introduce margin business in 2010, the business inject new blood and new vitality to the stock market. Margin business promoting an atmosphere in the market, also giving investors a new investment tool. The new business marks the arriving of the new epoch. By May 2015, the margin underlying stocks increase to 913. The ratio of net margin trading is increasing day by day. And therefore, it's necessary to research the relationship of net margin trading and stock prices. Currently, the study of margin trading on Chinese stock market most remain in the margin trading business introduction to the stock market's volatility, however very little research has addressed margin trading and stock prices. As a result, this paper will carry on the research of net margin trading and stock prices in predecessor's foundation.Based on the summary of domestic and foreign scholars' research on the margin trading, we put forward the following hypothesis. Hypothesis 1: margin trading business on the stock market has played a positive role. There are three layers of meaning: firstly, margin trading is reduced volatility in the stock market; secondly, the increase of net margin trading pushing up stock prices; thirdly, margin trading-short can play a stabilizing role. Hypothesis 2: In Chinese A share market,herd behavior is very common in credit investors, namely while net margin trading-long push stock prices up, then stock prices lead to further increases in net margin trading-long. When stock prices fall, there are always investors going short, and leading to increase net margin trading-short balance. In this thesis, Huatai Berri CSI 300 ETF funds is as the main studying object. This paper using Unit root tests, Co-integration tests, Granger causality tests and VAR models, mainly to find the relationship between the net margin trading and stock prices, at the same time, test the relationship of margin trading-short balance and stock prices as an auxiliary measure. Empirical results showed that: Firstly, net margin trading and stock prices are long-term equilibrium relationship; Secondly, by Granger causality tests, we find net margin trading-long and stock prices are cause and effect for each other, they react upon each other; margin trading-short is the Granger cause of stock prices, but stock prices is not the Granger cause of margin trading-short; Thirdly, Pulse analysis finding: in the short-term, net margin trading-long and stock prices are produced anti-direction of impact; margin trading-short generate positive impact on share prices. Conclusions as follows: for hypothesis 1, margin trading play a important role in stabilizing the market, the increase of net margin trading-long balance push stock prices up, but margin trading-short failed to stabilize the stock price. Margin trading dominated by negative effect on the stock market, adding to stock fluctuations. For hypothesis 2, herd behavior is not commonly found in stock market. Finally, according to the results and conclusions, we hope can give investors advice and policy recommendations.