CHINA FINANCIAL RESEARCH NETWORK
2011-03-31 第3卷 第5期
University of Texas, Pan AmericanDepartment of Finance
Haiwei Chen University of Texas, Pan AmericanDepartment of Finance
We compare the effects of futures market margin policy on trading activity and volatility between the China margin system and the U.S. margin system. In China margin levels are set as a fixed percentage of the underlying futures contract value and change daily as futures prices change over time. In contrast, margin is set at a fixed dollar amount for most contracts in the United States and is infrequently adjusted at the discretion of the exchange’s clearinghouse. We provide a theoretic model on how the changing margin cost between market-up days and market-down days would affect the demand and supply of short term speculators and long term hedgers in the Chinese futures market and their different effects on market volatility. The model shows that the futures price shocks should have an asymmetric effect on trading volume and volatility in the Chinese market but symmetric effect in the U.S. market and futures price should have a return dynamics that is more stable in the Chinese market than in the U.S. market. Using Soybean futures data from the Chinese and U.S. markets, we compare price and volatility dynamics between the two markets and find empirical support for our theoretic model and hypothesis.
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