Abstract: The margin trading mechanism which has the characteristics of short selling and leverage has been running for more than five years in our country. Did margin trading increase or decrease the stock market volatility? Scholars has yet to produce a consistent conclusion on this issue. In empirical, we researched the influences of margin trading on the volatility of CSI 300 Index by GARCH and VAR model, impulse response function and variance decomposition. The results showed that: the margin trading smooth the volatility of the stock market in our country and this inhibition strengthened gradually with the underlying shares expansion. But in a clear trend market (up or down), margin trading had further increased the volatility of the stock market. On individual effect, margin purchase and short sale both have reduced the volatility of the stock market, but this inhibition is more significant in margin purchase. In comparison, stock index futures increase the volatility of the spot market, but the effect was smaller than margin trading.

Key words: margin trading, CSI 300 index, volatility, VAR model