The Impact of Margin Trading on Volatility of Stock Market: Evidence from SSE 50 Index
- 1 College of Economics, Jinan University, Guangzhou, China
Abstract
No consensus has been reached on the impact of margin trading, including margin purchase and short sale, on market volatility. Margin purchase and short sale provide investors opportunities to be involved in financial market, so that this mechanism can increase market liquidity and efficiency. However, opponents argue that short sale may disrupt market. The data selected are SSE 50 index (Shanghai Security Exchange 50 Index) whose constituent shares are the most liquid and representative stocks in Shanghai Security. This paper analyzes SSE 50 Index covering a time period from Jan 4 th , 2007 to October 16 th , 2015. Moreover, time period is divided into three samples where market booms, corrects and drops. What’s more, this paper carries out Granger Causality Test, Impulse Response Analysis and Variance Decomposition Analysis, based on VAR model. To conclude, margin purchase and short sale ease volatility, but it depends when market is in different stage.
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