Search results

1 – 1 of 1
Per page
102050
Citations:
Loading...
Available. Open Access. Open Access
Article
Publication date: 27 January 2025

Yonghwan Jo and Dain Jung

In futures markets, margin trading not only relaxes leverage constraints but also entails the risk of margin calls. Therefore, existing studies provide inconsistent evidence on…

35

Abstract

Purpose

In futures markets, margin trading not only relaxes leverage constraints but also entails the risk of margin calls. Therefore, existing studies provide inconsistent evidence on low-risk anomalies, raising challenges in understanding leverage constraints in futures markets. This study aims to address this gap by focusing on margin call risk. Through bootstrap simulations with historical datasets, we find that margin call risk increases with longer investment horizons regardless of the initial margin, maintenance margin or individual futures volatilities. We also find that investors generally prefer higher leverage but adjust it in response to margin call risks across all futures sectors, leading them to opt for lower leverage for longer holding periods. Thus, while low-risk anomalies demonstrate statistical significance over longer investment horizons, their significance decreases for shorter investment horizons, such as less than six months. Our findings suggest that investors with sufficiently short holding periods are less likely to face leverage constraints in futures markets, especially the commodity, currency and bond futures markets.

Details

Journal of Derivatives and Quantitative Studies: 선물연구, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1229-988X

Keywords

1 – 1 of 1
Per page
102050