← Search

The Asymmetric Relation Between Initial Margin Requirements and Stock Market Volatility Across Bull and Bear Markets

Gikas A. Hardouvelis1; Panayiotis Theodossiou2

1 University of Piraeus · 2 Rutgers Sexual and Reproductive Health and Rights

Review of Financial Studies 2002 open access

Higher initial margin requirements are associated with lower subsequent stock market volatility during normal and bull periods, but show no relationship during bear periods. Higher margins are also negatively related to the conditional mean of stock returns, apparently because they reduce systemic risk. We conclude that a prudential rule for setting margins (or other regulatory restrictions) is to lower them in sharply declining markets in order to enhance liquidity and avoid a depyramiding effect in stock prices, but subsequently raise them and keep them at the higher level in order to prevent a future pyramiding effect

DOI
10.1093/rfs/15.5.1525
Volume
15 (5)
Pages
1525-1559
Language
en
Export
BibTeX
Sources
openalex crossref