Margin requirements and futures activity: Evidence from the soybean and corn markets

✍ Scribed by Adrangi, Bahram; Chatrath, Arjun

• Publisher: John Wiley and Sons
• Year: 1999
• Tongue: English
• Weight: 273 KB
• Volume: 19
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/(sici)1096-9934(199906)19:4<433::aid-fut3>3.0.co;2-a

✦ Synopsis

This article investigates the impact of margin requirements on the trading activity and volatility in futures markets. We extend Hartzmark's (1986) model for futures demand to allow for the costs imposed by margins to change across the maturity of the contract. The model is tested employing data from the soybean and corn markets. We find that trading activity becomes more sensitive to margin changes as one gets closer to contract maturity, inconsistent with the notion that margins impose important opportunity costs on futures traders. Margins are found to have a negative impact on the trading activities of all types of traders, though there is some evidence that margin alterations bring about changes in the makeup of the market. The data also indicate that margins are likely to be hiked during periods of increased volatility, and reduced during periods of relative *The authors have benefited from the comments of Gikas Hardouvelis and an anonymous referee.