IDEAS home Printed from
   My bibliography  Save this paper

The Effectiveness of Margin Requirements: Agent-Based Modeling Approach


  • Yi-Feng Tzeng
  • Chung-Yi Yang

    () (Information Management Yuan-Ze University)

  • Chia-Hsuan Yeh


The stock market crash in 1929 has raised many discussions about the causes and the ways to prevent the financial markets from large fluctuations. The role of the margin loan has usually been regarded as the source of instability in financial markets. The view that low margin infused excessive funds into the stock market was widely accepted at that time. Therefore, the Board of Governors of the Federal Reserve System was authorized by the Securities and Exchange Act to impose initial margin requirements on stock markets in October, 1934, which was previously set by the New York Stock Exchange and other private-sector exchanges. The original purposes of this regulation are three-fold: (1) to reduce excessive credit, and lead more credit toward productive uses, (2) to protect investors from speculative losses due to too much debt, and (3) to reduce price fluctuations caused by margin buying and short selling. In the literature, the discussion of the effectiveness of margin requirements has continued for more than forty years. Besides the controversy of academic research, both the Government and the Fed also possessed different opinions in the past twenty years. The reason that margin loans are believed to increase price volatility is described as a ``pyramiding-depyramiding'' process. The pyramiding-depyramiding process seems to be reasonable but can not be easily justified. The implicit assumption behind this process is that speculation is the source of instability. In this paper, we examine the effectiveness of margin requirements based on the times series properties of price and return volatility as well as their relations with trading volume under the framework of agent-based artificial stock market in which trader' behavior is modeled by genetic programming

Suggested Citation

  • Yi-Feng Tzeng & Chung-Yi Yang & Chia-Hsuan Yeh, 2005. "The Effectiveness of Margin Requirements: Agent-Based Modeling Approach," Computing in Economics and Finance 2005 79, Society for Computational Economics.
  • Handle: RePEc:sce:scecf5:79

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    Margin Requirements; Speculation; Agent-Based Modeling; Genetic Programming;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sce:scecf5:79. 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: (Christopher F. Baum). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.