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Margin Requirements, Volatility, and Market Integrity: What Have We Learned Since the Crash?

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  • Paul Kupiec

Abstract

This study assesses the state of the policy debate that surrounds the Federal regulation of margin requirements. A relatively comprehensive review of the literature finds on undisputed evidence that supports the hypothesis that margin requirements can be used to control stock return volatility and correspondingly little evidence that suggests that margin-related leverage is an important underlying source of ¶excess¶ volatility. The evidence does not support the hypothesis that there is a stable inverse relationship between the level of Regulation T margin requirements and stock returns volatility nor does it support the hypothesis that the leverage advantage in equity derivative products is a source of additional returns volatility in the stock market.

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File URL: http://hdl.handle.net/10.1023/A:1008080227190
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Bibliographic Info

Article provided by Springer in its journal Journal of Financial Services Research.

Volume (Year): 13 (1998)
Issue (Month): 3 (June)
Pages: 231-255

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Handle: RePEc:kap:jfsres:v:13:y:1998:i:3:p:231-255

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Web page: http://www.springerlink.com/link.asp?id=102934

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References

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Cited by:
  1. Wen-Chung Guo & Frank Yong Wang & Ho-Mou Wu, 2009. "Financial Leverage and Market Volatility with Diverse Beliefs," Finance Working Papers 22887, East Asian Bureau of Economic Research.
  2. Wen-Chung Guo & Frank Wang & Ho-Mou Wu, 2011. "Financial leverage and market volatility with diverse beliefs," Economic Theory, Springer, vol. 47(2), pages 337-364, June.
  3. Douglas J. Elliott & Greg Feldberg & Andreas Lehnert, 2013. "The history of cyclical macroprudential policy in the United States," Finance and Economics Discussion Series 2013-29, Board of Governors of the Federal Reserve System (U.S.).
  4. D. Matsypura & V.G. Timkovsky, 2013. "Integer programs for margining option portfolios by option spreads with more than four legs," Computational Management Science, Springer, vol. 10(1), pages 51-76, February.
  5. Domian, Dale L. & Racine, Marie D., 2006. "An empirical analysis of margin debt," International Review of Economics & Finance, Elsevier, vol. 15(2), pages 151-163.
  6. Raymond Knott & Marco Polenghi, 2006. "Assessing central counterparty margin coverage on futures contracts using GARCH models," Bank of England working papers 287, Bank of England.
  7. Shi, Wei & Irwin, Scott H., 2006. "What Happens when Peter can't Pay Paul: Risk Management at Futures Exchange Clearinghouses," 2006 Annual meeting, July 23-26, Long Beach, CA 21087, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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