The effects of index arbitrage and margin requirements on volatility and liquidity in stock and futures markets.
Item
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Title
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The effects of index arbitrage and margin requirements on volatility and liquidity in stock and futures markets.
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Identifier
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AAI9304744
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identifier
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9304744
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Creator
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Wang, Ming-long Andrew.
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Contributor
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Adviser: Harry Markowitz
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Date
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1992
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, Finance
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Abstract
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The purpose of this study is to simulate the effects of index arbitrage and uniform margin requirements on trading activities in the stock and futures markets. Simulation results show that index arbitrage does not affect volatility of return (long-term volatility), but it leads to greater intra-day high/low ratios (intra-day volatility), percentage bid/ask spreads and trading volume. Uniform margin requirements appear to have a trivial effect on market activities. Specifically, the results suggest that uniform margin requirements cannot serve the proclaimed policy purpose of curbing market volatility, and perhaps they even slightly increase volatility of return. The implications of this study are that the imposition of regulatory controls on index arbitrage would reduce market efficiency rather than decrease volatility. Investors with a long-term holding period should not be concerned about the trading practice of index arbitrage, and uniform margin requirements would be an ineffective regulatory control under the current market environment.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
