Margin Regulation and Stock Market Response: Further Evidence From the U.S. And Some Pacific‐basin Countries

Lee, Sang Bin; Yoo, Tae Yol

doi:10.1002/j.1873-5924.1991.tb00544.x

Cited by 4 publications

(1 citation statement)

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“…(1) those that investigate the relationship between margin requirement and volatility in the stock market (e.g. Hardouvelis, 1988;Salinger, 1989;Schwert, 1989;Hsieh and Miller, 1990;Lee and Yoo, 1991);…”

Section: Introductionmentioning

confidence: 99%

A stochastic process approach in setting the appropriate margin level for the TAIFEX stock index futures

Chou

Yu²

2006

Managerial Finance

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PurposeThe main purpose of this paper is to compute the appropriate margin level for the stock index futures traded on the Taiwan Futures Exchange (TAIFEX) and, then, to examine the appropriateness of the real margin requirement set by the TAIFEX.Design/methodology/approachThis paper develops a new approach assuming the future's prices follow a geometric Brownian motion process. Compared with the extreme value theory that has been intensively used to determine the appropriate futures margin levels, one of the advantages of the present model is no need to specify the frequency at which extremes are taken.FindingsThe evidences indicate that the theoretical margins obtained by the proposed model can provide a more accurate and flexible margin level in accordance with the market volatility.Research limitations/implicationsThe main limitation of this approach is that the natural logarithm of the futures prices is assumed to follow a Brownian motion process. However, such an assumption might not be practical for financial returns.Practical implicationsThe research is helpful for the clearinghouse to set up its margins policy, especially under various conditions of volatility risks.Originality/valueThis paper proposes a theoretical procedure to set an appropriate futures margin for the TAIFEX. This paper also provides a better understanding of Taiwan's futures market that is newly launched and is useful for investors to hedge and speculate.

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Section: Introductionmentioning

confidence: 99%