Seminar Date: 21st November, 2014 (Friday)

Seminar Time: 10:30 a.m. - 12:00 p.m.

Seminar Venue: Room 405, 4F, Building 1, College of Management

Speaker: Prof. Robin K. Chou

Title: The Effects of Margin Changes on the Composition of Traders and Market Liquidity: Evidence from the Taiwan Futures Exchange

Abstract:

We examine the effects of margin changes on futures trading activity, the composition of traders, and market liquidity using an account-level data set from the Taiwan Futures Exchange. We find that margin increases reduce trading activity for all trader types, which indicates that higher margins increase trading costs. Institutional trading is more sensitive to changes in margin requirements than individual traders. This, in turn, leads to increases in market price volatility and decreases in market liquidity. These results imply that margin requirements are not an effective policy tool for limiting the trading activity of noise speculators to reduce market volatility.