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The Effects of Margin Changes on the Composition of Traders and Market Liquidity: Evidence from the Taiwan Futures Exchange
Author(s) -
Chou Robin K.,
Wang George H. K.,
Wang YunYi
Publication year - 2015
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.21718
Subject(s) - futures contract , market liquidity , margin (machine learning) , futures market , speculation , volatility (finance) , algorithmic trading , economics , flash trading , monetary economics , open outcry , high frequency trading , limiting , financial economics , business , alternative trading system , dark liquidity , finance , mechanical engineering , machine learning , computer science , engineering
We examine the effects of margin changes on futures trading activity, the composition of traders, and market liquidity using an account‐level data set from the Taiwan Futures Exchange. We find that margin increases reduce trading activity for all trader types, which indicates that higher margins increase trading costs. Institutional trading is more sensitive to changes in margin requirements than individual traders. This, in turn, leads to increases in market price volatility and decreases in market liquidity. These results imply that margin requirements are not an effective policy tool for limiting the trading activity of noise speculators to reduce market volatility. © 2015 Wiley Periodicals, Inc. Jrl Fut Mark 35:894–915, 2015