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Rising bubbles by margin calls

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  • Alaminos, David

Abstract

This paper examines price bubble formation in commodity markets driven by margin calls, highlighting mechanisms causing extreme price volatility. Analyzing Nickel, WTI Oil, Silver, Copper, Wheat, Corn, and Soybean, I test five hypotheses on leverage, liquidity reduction, and positive feedback loops using advanced detection methods like LPPLS and GSADF. Results show high leverage and margin calls amplify volatility through forced trades and speculation. Asymmetrical reactions and herding behavior further exacerbate bubbles, particularly under supply constraints. My findings stress the need for improved risk management and regulatory measures to curb leverage-driven volatility, enhancing market stability and resilience.

Suggested Citation

  • Alaminos, David, 2025. "Rising bubbles by margin calls," Finance Research Letters, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finlet:v:74:y:2025:i:c:s1544612324017628
    DOI: 10.1016/j.frl.2024.106733
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    More about this item

    Keywords

    Bubbles; Crashes; Margin calls; Commodities; Speculation; GSADF; LPPLS;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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