Hostname: page-component-78c5997874-s2hrs Total loading time: 0 Render date: 2024-11-15T14:51:43.506Z Has data issue: false hasContentIssue false
  • English
  • Français

Margin Levels and the Behavior of Futures Prices

Published online by Cambridge University Press:  19 October 2009

Robert M. Bear
Get access Rights & Permissions [Opens in a new window]

Extract

This paper will demonstrate that different margin levels are associated with the price behavior differences of certain commodity futures. In 1959, Harry Roberts suggested the methodology of rational subgrouping as a means of testing random versus systematic price changes. His methodological suggestion has had only limited testing in security markets and no direct application to domestic futures markets. This paper uses margin levels as a basis for rational subgrouping of selected commodity futures. Evidence supports the argument that, when a series of price changes is grouped according to margin levels and these levels are analyzed separately, nonrandom characteristics that tend to be offsetting in the aggregate series become evident. The nonrandom behavior observed is consistent with the hypothesis that, in certain periods, margin levels have been set too high to attract a volume of speculative services necessary for the maintenance of market balance.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 7 , Issue 4 , September 1972 , pp. 1907 - 1930
Copyright
Copyright © School of Business Administration, University of Washington 1972

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Alexander, Sidney S. “Price Movements in Speculative Markets: Trends or Random Walks.” Industrial Management Review, II, May 1961, pp. 7–26.Google Scholar
[2]Alexander, Sidney S. “Price Movements in Speculative Markets: Trends or Random Walks, No. 2.” The Random Character of Stock Market Prices, edited by Cootner, Paul H.. Cambridge, Mass.: The M.I.T. Press, 1964.Google Scholar
[3]Bear, Robert M. “Martingale Movements in Commodity Futures.” Ph.D. diss., University of Iowa, 1970.Google Scholar
[4]Cootner, Paul H. “Returns to Speculators: Telser vs. Keynes.” Journal of Political Economy, LXVIII, August 1960, pp. 396–404.CrossRefGoogle Scholar
[5]Cootner, Paul H., ed. The Random Character of Stock Market Prices, rev. ed.Cambridge, Mass.: The M.I.T. Press, 1964.Google Scholar
[6]Fama, Eugene F. “The Behavior of Stock Market Prices.” The Journal of Business, XXXVIII, January 1965, pp. 34–105.CrossRefGoogle Scholar
[7]Fama, Eugene F. “Mandelbrot and the Stable Paretian Hypothesis.” The Journal of Business, XXXVI, October 1963, pp. 420–429.CrossRefGoogle Scholar
[8]Fama, Eugene F. “Portfolio Analysis in a Stable Paretian Market.” Management Science, XI, No. 3, 1965, pp. 404–419.CrossRefGoogle Scholar
[9]Fama, Eugene F. “Efficient Capital Markets; A Review of Theory and Empirical Work.” The Journal of Finance, May 1970.CrossRefGoogle Scholar
[10]Fama, Eugene F., and Blume, R.. “Filter Rules and Stock Market Trading.” Journal of Business, XXXIX, January 1966.Google Scholar
[11]“Farm Agency, Seeking Control of Margins in Futures Trading, Pins Hopes on Study.” The Wall Street Journal, March 20, 1967, p. 26.Google Scholar
[12]Granger, C.W.J., and Morgenstern, O.. “Spectral Analysis of Stock Market Prices.” Kyklos, Fasc. 1, 1963, pp. 16–19.CrossRefGoogle Scholar
[13]Grant, Eugene L.Statistical Quality Control. New York: McGraw-Hill Book Co. Inc., 1964.Google Scholar
[14]Gray, Roger. “The Search for a Risk Premium.” The Journal of Political Economy, LXIX, June 1961, pp. 250–260.CrossRefGoogle Scholar
[15]Houthakker, Hendrik. “Systematic and Random Elements in Short-Term Price Movements.” American Economic Review, LI, May 1961.Google Scholar
[16]Jensen, M., and Bennington, G.. “Random Walks and Technical Theories: Some Additional Evidence.” The Journal of Finance, May 1970.CrossRefGoogle Scholar
[17]Kendall, Maurice G. “The Analysis of Time Series: I.” Journal of the Royal Statistical Association, Series A, CXVI, 1953, pp. 11–25.CrossRefGoogle Scholar
[18]Labys, Walter C., and Granger, C.W.J.. Speculation, Hedging and Commodity Price Forecasts. Lexington, Mass.: D.C. Heath and Company, 1970.Google Scholar
[19]Larson, Arnold B. “Measurement of a Random Process in Futures Prices.” Food Research Institute Studies, I, November 1960, pp. 303–324.Google Scholar
[20]Levy, Robert. “An Evaluation of Selected Applications of Stock Market Timing Techniques, Trading Tactics and Trend Analysis.” Ph.D. diss., The American University, 1966.Google Scholar
[21]Levy, Robert. “Relative Strength as a Criterion for Investment Selection.” The Journal of Finance, XXII, December 1967.Google Scholar
[22]Mandelbrot, Benoit. “Forecasts of Future Prices, Unbiased Markets, and ‘Martingale’ Models.” Journal of Business, Special Supplement, 39, January 1966, pp. 242–255.CrossRefGoogle Scholar
[23]Mandelbrot, . “The Variation of Certain Speculative Prices.” Journal of Business, 36, No. 4, October 1963.Google Scholar
[24]McCain, U.G. “An Empirical Investigation into the Effects of Margin Requirements.” Ph.D. diss., Stanford University, 1969.Google Scholar
[25]Niederhoffer, Victor, and Osborne, M.F.M.. “Market Making and Reversal on the Stock Exchange.” Journal of the American Statistical Association, 61, December 1966, pp. 897–916.CrossRefGoogle Scholar
[26]Osborne, M.F.M. “Periodic Structure in the Brownian Motion of Stock Prices.” Operations Research, X, May–June 1962, pp. 345–379.CrossRefGoogle Scholar
[27]Peston, M.H., and Yamey, B.S.. “Inter-Temporal Price Relationships with Forward Markets: A Method of Analysis.” Economica. (N.S.), XXVII, November 1960, pp. 355–367.CrossRefGoogle Scholar
[28]Robert Nathan Associates, Inc. Margins, Speculation and Prices in Grain Futures Markets. U.S.D.A. Economic Research Service, December 1967.Google Scholar
[29]Roberts, Harry V. “Stock Market ‘Patterns‘ and Analysis: Methodological Suggestions.” The Journal of Finance, XIV, March 1959, pp. 1–10.Google Scholar
[30]Samuelson, Paul A. “Proof that Properly Anticipated Prices Fluctuate Randomly.” Industrial Management Review, VI, Spring 1965, pp. 41–49.Google Scholar
[31]Siegal, Sidney. Non-Parametric Statistics for the Behavioral Sciences. New York: McGraw-Hill Book Company, Inc., 1956.Google Scholar
[32]Smidt, Seymour. “A New Look at the Random Walk Hypothesis.” Journal of Financial and Quantitative Analysis, III, September 1968, pp. 235–262.CrossRefGoogle Scholar
[33]Smidt, Seymour. “A Test of the Serial Independence of Price Changes in Soybean Futures.” Food Research Institute Studies, V, No. 2, 1965.Google Scholar
[34]Stevenson, Richard A., and Bear, Robert M.. “Commodity Futures: Trends or Random Walks.” The Journal of Finance, XXV, March 1970, pp. 65–81.CrossRefGoogle Scholar
[35]Tomek, W.G., and Gray, R.. “Temporal Relationships Among Prices on Commodity Futures Markets: Their Allocative and Stabilizing Roles.” American Journal of Agriculture Economics, 52, August 1970.CrossRefGoogle Scholar
[36]Working, Holbrook. “A Random-Difference Series for Use in the Analysis of of Time Series.” Journal of the American Statistical Association, XXIX, 1934, pp. 11–34.CrossRefGoogle Scholar
[37]Working, Holbrook. “A Theory of Anticipatory Prices.” American Economic Review, May 1958, pp. 188–199.Google Scholar
[38]Working, Holbrook. “New Ideas and Methods for Price Research.” Journal of Farm Economics, December 1956, pp. 1427–1436.CrossRefGoogle Scholar
[39]Working, Holbrook. “Speculation on Hedging Markets.” Food Research Institute Studies, I, May 1960, p. 187.Google Scholar