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The Influences of Margin on the Shanghai Stock Market’s Volatility

Author WuMingYu
Tutor WuFei
School Jiangxi University of Finance
Course Finance
Keywords Margin purchase Short sale volatility VAR model Stock market
CLC
Type Master's thesis
Year 2013
Downloads 29
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Margin has been introduced nearly three years since its introduction. How do Margin affect the stock market? This has been a hot issue of debate in theoretical and practical circles. In recent years, the A-share market declined continuously. Its turnover is in the doldrums. Some scholars believe that the margin for the current A-share market look like a short hand, the introduction of margin trading has increased the volatility of market. With the margin trading system continued to mature in China, Only have a comprehensive understanding of the impact of the margin trading on the A-share market in China, can we play a positive role in this mechanism and avoid the adverse effects of the institutional mechanisms. In this way, China’s securities market will constantly perfected. This paper selected China’s Shanghai stock market of the SSE180index as an object to study. It was a thorough, systematic and rigorous analysis of the impact on the volatility of the stock market of Shanghai on the margin. At present, the size of the margin trading in China is growing, its impact on the stock market continue to appear. Since China has not fully carry out the business of refinancing, through studying the influence of margin to the stock market of Shanghai ’volatility at this stage, It will have important academic value and practical significance, and this was also the focus of regulators and investor.Specifically, this article is divided into a total of six parts:the first part is an introduction. This paper introduces the research background and significance of this research ideas, research methods, research purposes and innovation with inadequate. At the same time, this part also briefly introduces the research articles of the margin from domestic and foreign scholars. The second part is the theoretical basis of the margin. This part introduces the relative theory of the margin and clarifies the basic features and functions of the margin. This part also compared margin trading to ordinary securities transactions, and compared margin trading to short selling transactions. It further reveals the unique nature of the margin as an innovative transaction. The third part is the introduction to the mode of margin. It mainly introduces three typical modes of margin, and analyzes the advantages and disadvantages of the various modes. Through the analysis of the three modes, we put forward the insights of the further development of the margin trading. The forth Part clarifies the factors and mechanism of stock market volatility for the margin trading. And it discovers that the influencing factors of the margin trading are consisting of the main structure for investors, margin ratio and the margin range. Therefore, the analysis of the influencing factors of the margin trading to the stock market in China, we should not only to take into account the innovative business development of the margin, but also take the others factors of the margin into consideration. Then, this paper analyzes the mechanism that affect the stock market volatility for the Margin, and the internal mechanism for stock market volatility from the effect of margin. The fifth part is the empirical test. It selects243data of the margin after the margin transferred formal and takes the Shanghai securities market margin purchase, short sale and the volatility of the SSE180Index as variables. By constructing the VAR model, we know that margin has a certain impact on the volatility of the index. The subsequent step is the analysis of impulse response function and variance decomposition, from the point of the qualitative and quantitative view to survey the extent of the margin trading on the stock market. The sixth part is the conclusions and recommendations of the paper. According to the conclusion of the paper, in order to improve our margin trading mechanism, the paper proposed that decision-makers should speed up the development of the securities and financial companies, actively guide margin trading business transactions, strengthen education to small and medium-sized investor, and further strengthen internal institution-building of securities companies.Through empirical research, we get the following conclusions:(1) margin trading is one of the causes of the volatility of the stock market. Through the empirical research, we can find that margin purchase and short sale in the VAR model is significant. Further through the Granger testing, margin purchase is the Granger cause of volatility in the stock market, while volatility in the stock market is not the Granger cause of margin purchase. The testing of short sale also shows the same effects.(2) The margin can suppress the fluctuations of the stock market. Through the pulse response function analysis and variance decomposition analysis, it proved that margin can better suppress fluctuations in the stock market from a qualitative and quantitative point of view.(3) Compared with margin purchase on the stock market, short sale is more durable. To analysis the path of the impulse response of the short sale, we can know that its impact on the fluctuations of the stock market is more durable.(4) Margin purchase compared to the short sale can play better inhibition. At this stage, our margin purchase dominated in margin purchase, short sale due to various restrictions, its development is slow.

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