Abstract
Whether margin trading and securities lending transaction help to stabilize the stock market or amplify stock market volatility is a topic that has long been a concern. Based on the perspective of volatility asymmetry, we use event analysis and ARMA-EGARCH-M model to empirically test whether China’s margin trading and securities lending transactions can boost the bull market and aggravate the price decline in bear market. The empirical results show that the volatility of China’s stock market was asymmetric. Margin trading transactions reduced the stock market volatility while securities lending transactions increased the stock market volatility. Since the trading volume of margin trading was much larger than the trading volume of securities lending, the stock market volatility decreased since the launch of margin trading and securities lending mechanism.
Highlights
Whether margin trading and securities lending transaction help to stabilize the stock market or amplify stock market volatility is a topic that has long been a concern
Since the trading volume of margin trading was much larger than the trading volume of securities lending, the stock market volatility decreased since the launch of margin trading and securities lending mechanism
Most investors expect that the launch of margin trading and securities lending business in 2010 will stabilize stock market volatility and play a role as a market stabilizer
Summary
Whether margin trading and securities lending transaction help to stabilize the stock market or amplify stock market volatility is a topic that has long been a concern. If a margin trading and securities lending mechanism is introduced, investors can make a profit by buying long and by short selling, which helps to achieve a balance between the long and short power of the stock market. He who argues against the introduction of margin trading and securities lending mechanism thinks that China’s stock market is not mature enough. Most investors are keen on short-term speculation and chasing capital gains Under this circumstance, margin trading and securities lending mechanism cannot play the role of stock market stabilizer, but in contrast, will intensify the stock market fluctuation
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