Abstract: This paper studies the influence of margin mechanism of margin trading system on idiosyncratic volatility of stock price, with the data of China stock market from 2010 to 2015, finding that margin trading can enlarge stocks′ idiosyncratic volatilities in normal market environment: margin trading can enlarge idiosyncratic volatilities of stocks which have high idiosyncratic volatilities, but not of stocks which have low idiosyncratic volatilities. The conclusion is still valid after examining the impact of financing transactions and margin trading.

Key words: securities margin trading, credit trading, idiosyncratic volatility