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Revisiting the empirical estimation of the effect of margin changes on futures trading volume
Author(s) -
Dutt Hans R.,
Wein Ira L.
Publication year - 2003
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.10074
Subject(s) - margin (machine learning) , futures contract , economics , estimation , econometrics , treasury , financial economics , volume (thermodynamics) , empirical research , actuarial science , statistics , computer science , mathematics , physics , management , archaeology , quantum mechanics , machine learning , history
This study revisits the empirical estimation of the effect of margin requirements on trading volume. Althoughtheory suggests that margin requirements impose a cost to traders and will therefore likely reduce volume traded,empirical examinations have generally failed to find this association. The contention of this article is that thetheory is correct, but empirical estimation has generally neglected to adjust margins for underlying price risk.After adjusting for risk, this analysis finds economically and statistically significant negative effects ofmargin requirements on trading volume as predicted by theory. This study examined 6 contracts over a17‐year time period and found that financial futures contracts (gold, Dow Jones, and 10‐YearTreasury Notes) were considerably more sensitive to changes in margin requirements than agricultural futures(wheat, corn, and oats). © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:561–576, 2003