Margin Requirements and Equity Option Returns

Steffen Hitzemann, Michael Hofmann, Marliese Uhrig-Homburg, Christian Wagner

Publikation: KonferencebidragPaperForskningpeer review

Abstrakt

In equity option markets, traders face margin requirements both for the options themselves and for hedging-related positions in the underlying stock market. We show that these requirements carry a significant margin premium in the cross-section of equity option returns. The sign of the margin premium depends on demand pressure: If end-users are on the long side of the market, option returns decrease with margins, while they increase otherwise. Our results are statistically and economically significant and robust to different margin specifications and various control variables. We explain our findings by a model of funding-constrained derivatives dealers that require compensation for satisfying end-users’ option demand.
OriginalsprogEngelsk
Publikationsdato2016
Antal sider52
StatusUdgivet - 2016
BegivenhedThe 14th International Paris December Finance Meeting - Paris, Frankrig
Varighed: 20 dec. 201620 dec. 2016
Konferencens nummer: 14
https://www.eurofidai.org/fr/december2016.html

Konference

KonferenceThe 14th International Paris December Finance Meeting
Nummer14
LandFrankrig
ByParis
Periode20/12/201620/12/2016
Internetadresse

Emneord

  • Equity options
  • Margins
  • Funding liquidity
  • Cross-section of option returns

Citationsformater