The Impact Of Margin Financing And Securities Lending Transactions On China's Stock Market

Compared to western countries,the introduction of margin trading has a history of over one hundred years,China’s margin trading from the pilot to the end of 2016 less than 7 years.Its theoretical system and trading system is not mature enough,the risk control experience is not rich enough,need to be further improved.The purpose of margin trading is to improve the market efficiency,enhance the market price discovery function,play a role in stabilizing the market.But if the market abuse,when strong speculative atmosphere,margin trading will exacerbate the volatility of the market,play a role in destroying the market,if not controlled,even systemic financial risks.Around2015,China’s stock market rose and fell sharply,in one year,the Shanghai Composite Index rose more than 1.5 times,followed by a slump trend,less than 8 months,fell nearly 50%.There has been a rare thousand shares limit,continuous limit,liquidity loss rare trend,known as the stock market crash.The reason for this round of the market is largely due to the promotion of funds,and leveraged funds is an important part of this round of market funds,which margin trading funds is an important component of leveraged funds.Therefore,this paper would like to study the impact of the introduction of margin trading on China’s stock market,whether it has played a positive role,whether in the extreme market played a negative role.This paper studies the impact of margin trading on the volatility and liquidity of China’s stock market.The empirical research of this paper is divided into two aspects:one is the research of the overall market,select the Shanghai and Shenzhen 300 index as the research object of the whole market,using time series data,collected a total of 1643 days of data,useing VAR model,Granger causality test,impulse response function and variance decomposition and other measurement methods,studied the effect of margin trading on the overall market volatility and liquidity.The other one is to study the underlying stocks,selected 72 stocks as the research object,using panel data,collected a total of 115164 unbalanced panel data,established panel data model and the robustness test,to study the effects of liquidity and volatility.(1)Financing transaction is the Granger cause of volatility change,it can effectively reduce market’s and stocks’ volatility,play a role in stabilizing the market;Margin trading is not the Granger cause of volatility change,but exacerbated thevolatility of the underlying stocks,which may be due to the size of the margin trading is too small,can not play its normal role,margin trading needs to be further improved.(2)Financing transactions is the cause of the market liquidity changes in the Granger,financing transactions on the market as a whole and the underlying stocks can effectively provide liquidity;Margin trading is Granger cause changes in market liquidity,it reduces the liquidity of the market and the underlying stocks,which may be due to the size of the margin is too small,can not play its normal role,margin trading needs to be further improved.(3)Before and after the 2015 crash,financing transactions increased volatility of the stock market and the underlying stocks,exacerbated market volatility;Margin trading can reduce the volatility of the market and the underlying stocks,but because of its size was too small,it was difficult to give full play to reduce the role of market volatility,margin trading needs to be further improved.(4)Before and after the 2015 crash,financial transactions can effectively provide liquidity to the market and underlying stocks,compared to 2010-2016 years,the impact of the liquidity of financing transactions more significant;Margin trading can also provide liquidity for the market and underlying stocks,but the role is relatively small.Therefore,this paper proposes six policy recommendations.Improving the margin trading scale,encouraging the development of securities companies margin business,as well as encouraging the development of the transfer business;Continue to expand the range of underlying stocks to meet the needs of more investors trading;Reducing the cost of margin trading,especially short selling costs;Strengthening the supervision of margin trading business,taking the discretionary control means;Gradually release the qualification of margin trading,and provide more coupons for the market;Guiding investors to value investment,cultivating the awareness of short selling.