Margin Changes Effects of Price and Return Volatility in Gold Coin Futures Market at Iran Mercantile Exchange

Abstract

Supervisory institutes have paid a great attention to the use of margin as a control tool of excessive speculation in futures contracts market. Therefore, this paper studied margin changes effects on price and price volatility in Iran Mercantile Exchange (hereafter IME) using gold coin futures contracts data from November 2008 to July 2014. The US commodity futures trading commission (henceforth CFTC) has the authority to increase the margin to control speculators activities and prices in future contracts market. According to our research, based on information garnered from futures contracts market of Bahar-e-Azadi gold coin in IME, we concluded that any increase in margin results in higher open position costs, which begets price ascend. Considering our results, more amount of margin begets speculator providing liquidity out of the market, consequently surges price volatility. However, the results showed that there is no significant difference between effects of increased and decreased margins. Unfavorably, the effect of considerable margin change was smaller than that of small ones.