Advanced Search
MyIDEAS: Login

Margin requirements across equity-related instruments: how level is the playing field?


Author Info

  • Peter Fortune
Registered author(s):


    Investors can participate in the returns on the Standard and Poor's 500 composite index in a variety of ways, and these alternatives exist because they differ in important respects. This article assesses one dimension of these differences-margin requirements. ; Focusing on equity-related instruments, the author develops a model to simulate the values arising from several identical positions obtained by combinations of stocks and stock derivatives. The results are then used to assess the costs of margin requirements on alternative strategies. The primary conclusion is that the playing field is more level than a cursory focus on initial margin requirements might indicate. The costs associated with margin requirements on equities or stock indexes are essentially fixed costs. On the other hand, costs of margin requirements on derivatives, particularly on futures contracts, have a low fixed cost component but are more sensitive to the price of the underlying security. Investors may be choosing their strategies based on their tolerance for risk and may be sorting themselves into different markets, allowing all instruments to be financially viable.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL:
    Download Restriction: no

    File URL:
    Download Restriction: no

    Bibliographic Info

    Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

    Volume (Year): (2003)
    Issue (Month): ()
    Pages: 31-50

    as in new window
    Handle: RePEc:fip:fedbne:y:2003:p:31-50

    Contact details of provider:
    Postal: 600 Atlantic Avenue, Boston, Massachusetts 02210
    Phone: 617-973-3397
    Fax: 617-973-4221
    Web page:
    More information through EDIRC

    Order Information:

    Related research

    Keywords: Margins (Security trading);


    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. George Sofianos, 1988. "Margin requirements on equity instruments," Quarterly Review, Federal Reserve Bank of New York, issue Sum, pages 47-60.
    2. Peter Fortune, 1999. "Are stock returns different over weekends? a jump diffusion analysis of the "weekend effect"," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 3-19.
    3. Cathy E. Minehan & Katerina Simons, 1995. "Managing risk in the 90's: what should you be asking about derivatives?," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 3-25.
    4. Arturo Estrella, 1988. "Consistent margin requirements: are they feasible?," Quarterly Review, Federal Reserve Bank of New York, issue Sum, pages 61-79.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Paul Willen & Felix Kubler, 2006. "Collateralized Borrowing And Life-Cycle Portfolio Choice," 2006 Meeting Papers 578, Society for Economic Dynamics.


    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


    Access and download statistics


    When requesting a correction, please mention this item's handle: RePEc:fip:fedbne:y:2003:p:31-50. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Catherine Spozio).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.