The Effects of Margin Changes on Commodity Futures Markets

By Charoula Daskalaki, Ph.D., Department of Economics, University of Crete, Greece; and George Skiadopoulos, Ph.D., Department of Banking and Financial Management, University of Piraeus, Greece

As summarized by Ana-Maria Fuertes, Ph.D., Professor in Finance and Econometrics, Cass Business School, City, University of London, U.K. and Member of the GCARD’s Editorial Advisory Board

This digest article assesses the effect of margin changes on prices, the risk-sharing between speculators and hedgers, and the price stability of 20 commodity futures markets. The paper provides evidence that margin increases decrease the rate at which prices change, yet they impair the risk-sharing function and decrease market liquidity in certain markets.