Margin Changes and Futures Trading Activity
Margin Changes and Futures Trading Activity

Author: Antonis A. Aristidou

Publisher:

Published: 2008

Total Pages: 46

ISBN-13:

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The paper examines the impact of margins, adjusted for underlying price risk proxied by market volatility, on trading volume and at the same time incorporates the relationship between trading volume and price volatility documented in equities and futures markets. The study estimates bivariate GARCH-M models to take account of the inter-relationships and applies 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.

Margin-Trading Volatility and Stock Price Crash Risk
Margin-Trading Volatility and Stock Price Crash Risk

Author: Dayong Lv

Publisher:

Published: 2023

Total Pages: 0

ISBN-13:

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Previous studies rarely discuss the effect of margin trading on future stock price crash risk, though margin trading is often blamed for destabilizing stock market. We propose three possible mechanisms through which margin trading may affect crash risk. Our empirical results show that neither margin-buying activity nor margin debt are associated with future crash risk, rejecting mechanisms of both “liquidity provision” and “fire sales”. In contrasts, stocks with more margin-trading volatility are predicted to have more crash risk, supporting the view of “arbitrage risk mechanism”. Furthermore, we find that higher margin-trading volatility results in higher overpricing and less information content.