Margin Requirements, Price Fluctuations, and Market Participation in Metal Futures

Margin requirements in metal futures contracts have a negative impact on market participation which seems causal because it is absent from a benchmark group of metals that do not undergo similar margin changes. It is less clear whether margins restrict primarily rational or irrational investors. The stronger positive relation between margins and future target metal volatility than benchmark metal volatility can simply be attributed to the selection rule of the exchanges, as they increase margins in those metals for which they anticipate a comparatively higher future volatility. (Printed by permission of the publisher.)