This article examines the relationship between the volatility of the crude oil futures market and changes in initial margin requirements. To closely match changes in futures market volatility with the corresponding changes in margin requirements, we infer the volatility of the futures market from the prices of crude oil futures options contracts. Using a mean-reverting diffusion process for volatility, we show that changes in margin policy do not affect subsequent market volatility.

By buying convertibles and shorting the underlying stock, hedge funds distribute equity exposure to well-diversified shareholders. We find that firms with characteristics that make seasoned equity offerings expensive are more likely to issue convertibles to hedge funds. We conclude that hedge funds provide opportunities for firms to issue convertible securities at a lower cost than seasoned equity by serving as relatively low-cost distributors of equity exposure. A higher fraction of a convertible is privately placed with hedge funds when institutional ownership, stock liquidity, issue size, concurrent stock repurchases, and limitations on callability suggest that shorting costs will be lower.