The Effect of Initial Margin on Long-run and Short-run Volatilities in Japan

Sangbae Kim () and Taehun Jung ()
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Sangbae Kim: Kyungpook National University
Taehun Jung: Kyungpook National University

East Asian Economic Review, 2013, vol. 17, issue 3, 311-332

Abstract: This paper examines the effect of initial margin requirements on long-run and short-run volatilities in the Japanese stock market using the Component GARCH model. Our empirical results show that when we do not divide the margin requirement into positive and negative changes, increasing margin requirement is effective for reducing long-run volatility, while not effective in short-run volatility. However, separating the positive and negative changes in margin requirements reveals the fact that the negative changes in margin requirements decrease long-run volatilities, while the higher margin requirements increase short-run volatilities in the Japanese stock market. This suggests that if the Japanese financial authorities intend to increase margin level to reduce volatility, unexpectedly, short-run volatility would be even higher.

Keywords: Margin Requirement; Long-run Volatility; Short-run Volatility; Component GARCH Model (search for similar items in EconPapers)
JEL-codes: G10 G14 G18 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:0056

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