The effects of margin changes on commodity futures markets

Charoula Daskalaki and George Skiadopoulos

Journal of Financial Stability, 2016, vol. 22, issue C, 129-152

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.

Keywords: Commodities; Hedging; Market liquidity; Margins; Speculators (search for similar items in EconPapers)
JEL-codes: G10 G14 G18 G28 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (12)

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Related works:
Working Paper: The Effects of Margin Changes on Commodity Futures Markets (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:22:y:2016:i:c:p:129-152

DOI: 10.1016/j.jfs.2016.01.002

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