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Margin Changes and Futures Trading Activity: a New Approach
Author(s) -
Phylaktis Kate,
Aristidou Antonis
Publication year - 2013
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2010.00565.x
Subject(s) - volatility (finance) , futures contract , margin (machine learning) , bivariate analysis , economics , econometrics , financial economics , autoregressive conditional heteroskedasticity , futures market , derivatives market , volume weighted average price , stock market , monetary economics , market maker , mathematics , computer science , statistics , machine learning , paleontology , horse , biology
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.