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Margin Changes and Futures Trading Activity: a New Approach

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  • Kate Phylaktis
  • Antonis Aristidou

Abstract

In this paper we examine the impact of margins, adjusted for underlying price risk proxied by market volatility, on trading volume and incorporate the relationship between trading volume and price volatility documented in stock markets. We estimate a bivariate GARCH†M model to take account of the inter†relationships and apply them to the Greek derivatives market over the period 1999–2005. The results show that when adjusting margins for market risk there is no impact on trading volume, casting doubts on the results of previous research, and providing support for the view that margin requirements are used only as a mechanism to prevent trader default.

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  • Kate Phylaktis & Antonis Aristidou, 2013. "Margin Changes and Futures Trading Activity: a New Approach," European Financial Management, European Financial Management Association, vol. 19(1), pages 45-71, January.
    • Handle: RePEc:bla:eufman:v:19:y:2013:i:1:p:45-71
    DOI: 10.1111/j.1468-036X.2010.00565.x
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    Cited by:

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    2. Alexander, Carol & Kaeck, Andreas & Sumawong, Anannit, 2019. "A parsimonious parametric model for generating margin requirements for futures," European Journal of Operational Research, Elsevier, vol. 273(1), pages 31-43.
    3. Zhang, Xiaotao & Zhao, Yuepeng & Wang, Ziqiao, 2024. "Do loosened trading rules restore the stock index futures price discovery ability in China?," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 389-397.
    4. Edward Curran & Jack Hunt & Vito Mollica, 2020. "Trading protocols and price discovery: Implicit transaction costs in Indian single stock futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(11), pages 1793-1806, November.

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