Song Jun, Li Jinliu, Ling Ruobing

(International Finance Department, Fudan University, Shanghai, China)

 

 

Abstract: This paper differentiates two types of margin requirement increase in Chinese futures market: regular margin increase and risk margin increase. We use SVAR model to study the relationship among the open interests, the price volatility and the margin level of six kinds of futures traded on SHFE. The result demonstrates that the volatility and open interests both decline after a regular margin increase while they do not decrease as expected after the risk margin increase. The result suggests that while the current Chinese margin system can reduce default risk related to deliveries, it has limited effect on controlling market risk.

 

 

Key words: margin requirement; structural vector auto-regression (SVAR); volatility; open interest

 

JEL codes: G14, G18