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
Publikationsdato2018
Antal sider52
StatusUdgivet - 2018
BegivenhedThe 78th Annual Meeting of American Finance Association. AFA 2018 - Philadelphia, USA
Varighed: 5 jan. 20187 jan. 2018
Konferencens nummer: 78
https://editorialexpress.com/conference/AFA2018/program/AFA2018.html

Konference

KonferenceThe 78th Annual Meeting of American Finance Association. AFA 2018
Nummer78
LandUSA
ByPhiladelphia
Periode05/01/201807/01/2018
Internetadresse

Emneord

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

Citationsformater