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How does leverage in stock market influence the margin of stock index futures?

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  • Hailong Liu
  • Yushan Shi

Abstract

In this article, we propose a margin-setting model under the assumption of extreme stock price changes. Specifically, extreme stock price changes are caused by the positive feedback effect of leverage and market impact. By introducing these factors into the futures price changes through a cost-of-carry model for setting the margin of stock index futures, we find that leverage and market impact in stock market are positively correlated with the margin.

Suggested Citation

  • Hailong Liu & Yushan Shi, 2018. "How does leverage in stock market influence the margin of stock index futures?," Applied Economics Letters, Taylor & Francis Journals, vol. 25(12), pages 816-820, July.
    • Handle: RePEc:taf:apeclt:v:25:y:2018:i:12:p:816-820
    DOI: 10.1080/13504851.2017.1368982
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