The impact of margin trading on the volatility of the stock market is still debated in the academic circles. This paper selects the datas of Shenzhen stock market to test it with the VAR model analysis and Granger causality test. The quality of a stock market can be measured from three aspects of volatility, transparency and effectiveness, but the transparency and effectiveness do not have exact data for quantitative analysis. This paper focuses on the impact of margin trading on volatility. This paper is organized as follows. First of all, this article introduces the research background, and then reviews the results of theoretical studies abroad based on the theory, namely margin trading can reduce volatility in Shenzhen stock market in China. The empirical part, through the VAR model analysis and Grainger causality test, draws the following conclusion. Margin trading can reduce the volatility of the stock market. Margin trading and stock market volatility are each other’s Grainger reasons.

An Empirical Study of the Impact of Margin Trading on the Volatility of Shenzhen Stock Market

This paper researches on the daily returns of Shanghai Stock Index and Shenzhen Component Index, applies GARCH and TARCH models to analyze conditional heteroskedasticity and non-symmetry of the daily returns, and reveals the different volatility characteristics between the two stock indexes

The Empirical Research on Volatility Characteristics of Chinese Stock Market

This paper explored the linkage between short selling and market stabilization. While financial and economic theory advocates the positive role played by short sellers for market stabilization, short sellers are frequently blamed for causing market decline and increasing the panic in falling markets. China's regulators allowed short selling in 2010 and this reform provided us an interesting data set to check whether short sellers destabilize the market or play a positive role. By using asymmetric TGARCH model on daily return data of Shanghai Stock Exchange 50 index from January 5, 2007 to June 11, 2012, and taking into account Day-of-the-Week effect, financial crisis and regional and international spillovers, we found robust evidence that short sale trading reduces the volatility and stabilizes the market. Our findings have implications for China's regulators in policy making as well investors in the Chinese stock market in portfolio development.

Impact of Short Selling on Volatility of Individual Stocks and Aggregate Market: Empirical Evidence from China.

Margin trading in the securities market is an important modern trading system. This paper utilizes the data from Shanghai stock market to study the liquidity and volatility changes of market before and after the introduction of margin trading and the relationship among them. Then I arrived at the conclusion after correlations test, unit root test, cointegration test, and the Granger Causality test that for the Shanghai stock market, the starting of margin trading had a positive impact on market liquidity and volatility, and could improve the market liquidity and stabilize the stock price volatility to a certain extent.

Wu Qiong

Papers

The impact of margin trading on the liquidity and volatility of the securities market based on the empirical research of the Shanghai security market