The Effects Of Margin Trading On China Stock Market’s Volatility

On March 31,2010, the China Securities Regulatory Commission (CSRC) started to allow margin-trading and short-selling, and it formally has been implemented in December 31,2010. During the past five years, the margin-trading and short-selling has developed at a high speed from 6.6 million yuan to its peak of 2.2 trillion yuan in June 2015. The margin-trading and short-selling been implemented is an important measure to improve the construction of China securities market, enrich the means of Securities trading and enhance the Market effect. The margin-trading and short-selling has already existed and developed for many years in the world-wild. What effect does it play in the securities market? This issue has not reached agreement in world-wide researches. It has three views about this issue:the first is that it will increase market volatility, the second is that it can play a role to stabilize the market in the contrary, and the last is that its effect is unclear.The main contents and conclusions of this paper are as followings:(1) Choosing the stock markets of Shanghai and Shenzhen as the research object, taking the HuShen300 Index as the representation of the stock markets of Shanghai and Shenzhen, Using the GARCH model, the theory of vector autoregressive (VAR), Granger causality test and Impulse response empirically test the effects of Margin Trading on China stock market volatility.(2) Selecting five larger adjustments of the available securities margin trading list from March 2010 to November 2015 in the China Stock Market as the research object. Five addition events on March 31,2010, December 5,2011, January 31, 2013, September 16,2013 and September 22,2014 are used to analyze the effects of margin-trading and short-selling on stock volatility.(3) The empirical results support that the margin-trading and short-selling can weaken the market volatility and stabilize the market, but this effect is not strong. The effect of margin-trading is more than short-selling.(4) The empirical results do support the hypothesis that stock been added in the list of margin-trading and short-selling could reduce the volatility of individual stocks.