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Margin Rules and Margin Trading: Past, Present, and Implications

Author

Listed:
  • Zhuo Chen

    (PBC School of Finance, Tsinghua University, Beijing, China)

  • Zhiguo He

    (National Bureau of Economic Research, Cambridge, Massachusetts, USA
    Graduate School of Business, Stanford University, Stanford, California, USA)

  • Wei Wei

    (Graduate School of Business, Stanford University, Stanford, California, USA)

Abstract

Margin—collateral or funds that investors deposit with their counterparties—is a crucial component of the practice of borrowing money to fund investment. While margin offers the potential for enhanced returns, it also exposes investors to the risk of escalated losses, thereby necessitating stringent regulatory oversight. Delving into the regulatory framework governing margin trading, we provide historical insights into the origins and dynamics of various margin requirements, and we review academic studies that illuminate the implications of these regulations for asset pricing, financial stability, and the design of margin rules. With an eye to the future, we also outline recent advancements in the evolving landscape of margin rules, such as portfolio margin and central clearing.

Suggested Citation

  • Zhuo Chen & Zhiguo He & Wei Wei, 2024. "Margin Rules and Margin Trading: Past, Present, and Implications," Annual Review of Financial Economics, Annual Reviews, vol. 16(1), pages 153-177, November.
    • Handle: RePEc:anr:refeco:v:16:y:2024:p:153-177
    DOI: 10.1146/annurev-financial-110921-102509
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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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