The Influence of EU Regulation of Margin Requirements on Market Stock Volatility

In this paper it was examined the influence of margin
regulation on stock market volatility in EU 1993 – 2014. Regulating
margin requirements or haircuts for securities financing transactions
has for a long time been considered as a potential tool to limit the
build-up of leverage and dampen volatility in financial markets. The
margin requirement dictates how much investors can borrow against
these securities. Margin can be an important part of investment.
Using daily and monthly stock returns and there is no convincing
evidence that EU Regulation margin requirements have served to
dampen stock market volatility. In this paper was detected the
expected negative relation between margin requirements and the
amount of margin credit outstanding. Also, it confirmed that changes
in margin requirements by the EU regulation have tended to follow
than lead changes in market volatility. For the analysis have been
used the modified Levene statistics to test whether the standard
deviation of stock returns in the 25, 50 and 100 days preceding
margin changes is the same as that in the succeeding 25, 50 and 100
days. The analysis started in May 1993 when it was first empowered
to set the initial margin requirement and the last sample was in May
2014. To test whether margin requirements influence stock market
volatility over the long term, the sample of stock returns was divided
into 14 periods, according to the 14 changes in margin requirements.

• Nadira Kaimova

• Levene statistic
• Margin Regulation
• Stock Market
• Volatility.

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