The Impact of Securities Margin Trading on the Stock Market Volatility and Liquidity —— Based on the Empirical Results of Shanghai and Shenzhen Markets

DOI

10.2991/aebmr.k.210319.117How to use a DOI?

Keywords

VAR Model, Securities Margin Trading, Stock Market Volatility and Liquidity

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.

Copyright

© 2021, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Liru Bai
AU  - Yiming Li
PY  - 2021
DA  - 2021/03/22
TI  - The Impact of Securities Margin Trading on the Stock Market Volatility and Liquidity —— Based on the Empirical Results of Shanghai and Shenzhen Markets
BT  - Proceedings of the 6th International Conference on Financial Innovation and Economic Development (ICFIED 2021)
PB  - Atlantis Press
SP  - 635
EP  - 640
SN  - 2352-5428
UR  - https://doi.org/10.2991/aebmr.k.210319.117
DO  - 10.2991/aebmr.k.210319.117
ID  - Bai2021
ER  -