✦ LIBER ✦

Initial margin requirements and stock returns volatility: Another look

✍ Scribed by Paul H. Kupiec

Publisher: Springer
Year: 1989
Tongue: English
Weight: 879 KB
Volume: 3
Category: Article
ISSN: 0920-8550
DOI: 10.1007/bf00122807

No coin nor oath required. For personal study only.

✦ Synopsis

This article investigates the relationship between initial margin requirements and stock return volatility. Volatility is measured using a GARCH in Mean model. We find no evidence of an empirical relationship between margin requirements and the volatility of the S&P 500 index portfolio's excess returns. Evidence from short-sale data, and model sensitivity analysis are presented which support the hypothesis of no margin-volatility relationship. The results are consistent with the intertemporal CAPM model of Merton (1973) with an aggregate relative risk aversion measure of 4.1. In addition, we find evidence of long-term memory in conditional return distributions' volatility.

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