Price volatility and futures margins

Hardouvelis, Gikas A.; Kim, Dongcheol

doi:10.1002/(sici)1096-9934(199602)16:1<81::aid-fut5>3.3.co;2-6

Cited by 5 publications

(4 citation statements)

References 15 publications

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“…The TAIFEX margin changes seem to be positively related to the current and subsequent price volatility . This result supports the general belief asserted in prior literature (Hardouvelis, ; Hardouvelis & Kim, ) that exchanges systematically raise (lower) margin requirements in anticipation of higher (lower) future volatility to control for traders' risk exposures.…”

Section: Market Description and Datasupporting

confidence: 89%

“…Previous empirical results regarding the impact of margin changes on price volatility are mixed. For example, Hardouvelis and Kim (1995, 1996), Chatrath, Adrangi, and Allender (), and Daskalaki and Skiadopoulos () report a significantly positive relationship between margin changes and price volatility, while Ma, Kao, and Frohlich () report the opposite. Hartzmark (), Kupiec (), and Fishe, Goldberg, Gosnell, and Sinha (), however, do not find consistent relationships between margin changes and price volatility.…”

Section: Introductionmentioning

confidence: 99%

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The Effects of Margin Changes on the Composition of Traders and Market Liquidity: Evidence from the Taiwan Futures Exchange

Chou

Wang

2015

Journal of Futures Markets

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We examine the effects of margin changes on futures trading activity, the composition of traders, and market liquidity using an account‐level data set from the Taiwan Futures Exchange. We find that margin increases reduce trading activity for all trader types, which indicates that higher margins increase trading costs. Institutional trading is more sensitive to changes in margin requirements than individual traders. This, in turn, leads to increases in market price volatility and decreases in market liquidity. These results imply that margin requirements are not an effective policy tool for limiting the trading activity of noise speculators to reduce market volatility. © 2015 Wiley Periodicals, Inc. Jrl Fut Mark 35:894–915, 2015

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Section: Market Description and Datasupporting

confidence: 89%

Section: Introductionmentioning

confidence: 99%

The Effects of Margin Changes on the Composition of Traders and Market Liquidity: Evidence from the Taiwan Futures Exchange

Chou

Wang

2015

Journal of Futures Markets

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“…For instance, there is no historical evidence that directives to increase futures margins were effective at lowering overall price levels. The only consistently documented impact of the higher margin requirements is a decline in futures trading volume due to the increased cost of trading (Fishe and Goldberg, 1986;Peck and Budge, 1987;Hardouvelis and Kim, 1996).…”

Section: Lessons From Historymentioning

confidence: 99%

Devil or Angel? The Role of Speculation in the Recent Commodity Price Boom (and Bust)

Irwin

Sanders

Merrin

2009

J. Agric. Appl. Econ.

279

166

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It is commonly asserted that speculative buying by index funds in commodity futures and over-the–counter derivatives markets created a “bubble“ in commodity prices, with the result that prices, and crude oil prices, in particular, far exceeded fundamental values at the peak. The purpose of this paper is to show that the bubble argument simply does not withstand close scrutiny. Four main points are explored. First, the arguments of bubble proponents are conceptually flawed and reflect fundamental and basic misunderstandings of how commodity futures markets actually work. Second, a number of facts about the situation in commodity markets are inconsistent with the existence of a substantial bubble in commodity prices. Third, available statistical evidence does not indicate that positions for any group in commodity futures markets, including long-only index funds, consistently lead futures price changes. Fourth, there is a historical pattern of attacks upon speculation during periods of extreme market volatility.

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“…Higher volatility leads the clearinghouse to increase margins, but the increase in margin has no measurable eect on contract price volatility subsequently. Hardouvelis and Kim (1996), examine the same data and model volatility including a jump process. This added technical embellishment does not uncover any new compelling evidence.…”

Section: Margins and Volatility In The Futures Marketsmentioning

confidence: 99%

Margin Requirements, Volatility, and Market Integrity: What Have We Learned since the Crash?

Kupiec

1997

FEDS

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This study assesses the state of the policy debate that surrounds the Federal regulation of margin requirements. A relatively comprehensive review of the literature nds no undisputed evidence that supports the hypothesis that margin requirements can be used to control stock return volatility and correspondingly little evidence that suggests that margin-related leverage is an important underlying source of \excess" volatility. The evidence does not support the hypothesis that there is a stable inverse relationship between the level of Regulation T margin requirements and stock returns volatility nor does it support the hypothesis that the leverage advantage in equity derivative products is a source of additional returns volatility in the stock market.

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Price volatility and futures margins

Cited by 5 publications

References 15 publications

The Effects of Margin Changes on the Composition of Traders and Market Liquidity: Evidence from the Taiwan Futures Exchange

The Effects of Margin Changes on the Composition of Traders and Market Liquidity: Evidence from the Taiwan Futures Exchange

Devil or Angel? The Role of Speculation in the Recent Commodity Price Boom (and Bust)

Margin Requirements, Volatility, and Market Integrity: What Have We Learned since the Crash?

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