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Liru Bai

Bio: Liru Bai is an academic researcher. The author has contributed to research in topics: Market liquidity & Margin (finance). The author has co-authored 1 publications.

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Proceedings ArticleDOI
22 Mar 2021
TL;DR: Wang et al. as mentioned in this paper analyzed the influence of margining trading and short selling on stock market volatility and liquidity, with the methods of the VAR model, Granger causality test, impulse-response analysis and variance decomposition.
Abstract: Securities margin trading is a momentous financial innovation in China’s capital market, since formally carried out in March 2010. The intention of this policy is to enhance the liquidity of the stock market, as well as to reduce the market volatility. In order to study whether the securities margin trading has achieved the desired effect, this paper focus on the trading data of Shanghai and Shenzhen stock exchange from March 2010 to November 2020, and analyses the influence of margining trading and short selling on stock market volatility and liquidity, with the methods of the VAR model, Granger causality test, impulse-response analysis and variance decomposition. The empirical results show that, firstly, there is a long-term equilibrium relationship among securities margin trading, the volatility and the liquidity of stock market, no matter in Shanghai or Shenzhen. Secondly, the Granger causality test shows that with the regularization of margin trading and short selling, its changes have a two-way impact on the volatility and liquidity of the Shanghai and Shenzhen stock markets. Thirdly, according to the results of impulse-response and variance decomposition, margin trading and short selling play a significant role in restraining abnormal fluctuations of the stock market, although they do not account for a high proportion of stock trading, which is consistent with the initial intention of financial innovation. However, as for liquidity, impulse-response shows that margin lending and short selling significantly enhance it, but variance decomposition shows the opposite.