The Impact of Securities Margin Trading on the Stock Market Volatility and Liquidity —— Based on the Empirical Results of Shanghai and Shenzhen Markets
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TLDR
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.read more
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Journal Article
Empirical Research on the Impact of Margin Trading on Liquidity and Volatility of Shanghai Security Market
TL;DR: Based on the data of Shanghai Security Market, this paper study the margin trading effects on the market liquidity and volatility, and draw the conclusion that margin trading could stabilize the volatility of single stock and enhance stock liquidity.
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