Research on the Effect of Margin and Short-selling on the Volatility of Stock Price

Abstract

Since the introduction of margin trading in March 2010, the effect of margin trading on stock market volatility is always a hot topic. However, does margin trading stabilize stock market? What the effect in different lever period? The result of these studies is inconclusive. As one of the most important credit trading system, the margin trading provides a tool to avoid the market risks to investors. In Financial crisis, developed countries often take restrictive measures of margin trading to stabilize the market. From 2015 to 2016, the Chinese securities market has experienced a significant boom and crash, providing a precious natural opportunity for us to investigate the effect of margin trading in different lever period.The result shows that in the period of sharp leverage and de-leveraging, margin trading significantly heightened the stock market volatility. The finance load exchange heightened the stock market volatility, the securities load exchange exacerbated the stock market volatility. When the level in the reasonable interval, margin trading stabilized the stock market volatility. In this period, both finance and securities load exchange are stabilized the volatility. Therefore, regulatory authorities should be strengthen the supervision and regulation of the margin trading mechanism, the implementation of the policy of the margin trading, and it will play a positive effect to the market.