Research on the margin of futures markets and the policy spillover effect

Purpose–The purpose of this paper is to investigate whether the change of margin in Chinese futures markets has policy spillover effects. Design/methodology/approach–The paper constructs a model based on Harzmark and on Chng, taking Chinese futures markets status quo as a single species and restrictions on foreign investment into consideration, introduces the assumptions of spillover effect of speculators, then obtains investor's demand function. Subsequently, the effects of Shanghai Futures Exchange's 11 instances of margin changing are analyzed. Findings–The paper finds that in the Chinese futures market, margin changing has impact on the open interest (OI) and the speculator spillover effect is validated. Research limitations/implications–The irrational behavior of investors in markets is not taken into account in the model and data about spillover speculators were not directly available. Originality/value–The paper usefully analyzes the effects of the Shanghai Futures Exchange's 11 instances of margin changing from 2000 to 2007 and examines the actual effects of margin-changing policy, in the views of OI, trading volume and the externality, the results showing that margin changing has impact on investor structure and validates the existence of the assumed speculator spillover effect.