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The effects of margin changes on commodity futures markets

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  • Daskalaki, Charoula
  • Skiadopoulos, George

Abstract

In light of the recently passed 2010 Dodd–Frank Act, we assess the effect of margin changes on prices, the risk-sharing between speculators and hedgers, and the price stability of 20 commodity futures markets. We find that margin increases decrease the rate at which prices change, yet they impair the risk sharing function and they decrease market liquidity in certain markets. The regulator should set margins by taking the heterogeneity of commodity futures markets into account. Certain effects of margin changes diffuse across related markets though. Our results are robust to endogenously set margins by the exchanges and to alternative ways of measuring market liquidity. Interestingly, the effect of margin changes is more pronounced in commodity futures markets than in major equity and interest rate futures markets.

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  • Daskalaki, Charoula & Skiadopoulos, George, 2016. "The effects of margin changes on commodity futures markets," Journal of Financial Stability, Elsevier, vol. 22(C), pages 129-152.
    • Handle: RePEc:eee:finsta:v:22:y:2016:i:c:p:129-152
    DOI: 10.1016/j.jfs.2016.01.002
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    More about this item

    Keywords

    Commodities; Hedging; Market liquidity; Margins; Speculators;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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