Margin requirements and volatility : evidence from Canadian stocks

Margin policy is used by regulators for the purpose of inhibiting exceSSIve volatility and stabilizing the stock market in the long run. The effect of this policy on the stock market is widely tested empirically. However, most prior studies are limited in the sense that they investigate the margin requirement for the overall stock market rather than for individual stocks, and the time periods examined are confined to the pre-1974 period as no change in the margin requirement occurred post-1974 in the U.S. This thesis intends to address the above limitations by providing a direct examination of the effect of margin requirement on return, volume, and volatility of individual companies and by using more recent data in the Canadian stock market. Using the methodologies of variance ratio test and event study with conditional volatility (EGARCH) model, we find no convincing evidence that change in margin requirement affects subsequent stock return volatility. We also find similar results for returns and trading volume. These empirical findings lead us to conclude that the use of margin policy by regulators fails to achieve the goal of inhibiting speculating activities and stabilizing volatility.

The information content of Canadian implied volatility indexes

For predicting future volatility, empirical studies find mixed results regarding two issues: (1) whether model free implied volatility has more information content than Black-Scholes model-based implied volatility; (2) whether implied volatility outperforms historical volatilities. In this thesis, we address these two issues using the Canadian financial data. First, we examine the information content and forecasting power between VIXC - a model free implied volatility, and MVX - a model-based implied volatility. The GARCH in-sample test indicates that VIXC subsumes all information that is reflected in MVX. The out-of-sample examination indicates that VIXC is superior to MVX for predicting the next 1-, 5-, 10-, and 22-trading days' realized volatility. Second, we investigate the predictive power between VIXC and alternative volatility forecasts derived from historical index prices. We find that for time horizons lesser than 10-trading days, VIXC provides more accurate forecasts. However, for longer time horizons, the historical volatilities, particularly the random walk, provide better forecasts. We conclude that VIXC cannot incorporate all information contained in historical index prices for predicting future volatility.

Volume-Synchronized Probability of Informed Trading (VPIN), Market Volatility, and High-Frequency Liquidity

We assess the predictive ability of three VPIN metrics on the basis of two highly volatile market events of China, and examine the association between VPIN and toxic-induced volatility through conditional probability analysis and multiple regression. We examine the dynamic relationship on VPIN and high-frequency liquidity using Vector Auto-Regression models, Granger Causality tests, and impulse response analysis. Our results suggest that Bulk Volume VPIN has the best risk-warning effect among major VPIN metrics. VPIN has a positive association with market volatility induced by toxic information flow. Most importantly, we document a positive feedback effect between VPIN and high-frequency liquidity, where a negative liquidity shock boosts up VPIN, which, in turn, leads to further liquidity drain. Our study provides empirical evidence that reflects an intrinsic game between informed traders and market makers when facing toxic information in the high-frequency trading world.

Reduced power output in skeletal muscles devoid of skMLCK: RLC phosphorylation contributes to peak performance

Regulatory light chain (RLC) phosphorylation in fast twitch muscle is catalyzed by skeletal myosin light chain kinase (skMLCK), a reaction known to increase muscle force, work, and power. The purpose of this study was to explore the contribution of RLC phosphorylation on the power of mouse fast muscle during high frequency (100 Hz) concentric contractions. To determine peak power shortening ramps (1.05 to 0.90 Lo) were applied to Wildtype (WT) and skMLCK knockout (skMLCK-/-) EDL muscles at a range of shortening velocities between 0.05-0.65 of maximal shortening velocity (Vmax), before and after a conditioning stimulus (CS). As a result, mean power was increased to 1.28 ± 0.05 and 1.11 ± .05 of pre-CS values, when collapsed for shortening velocity in WT and skMLCK-/-, respectively (n = 10). In addition, fitting each data set to a second order polynomial revealed that WT mice had significantly higher peak power output (27.67 ± 1.12 W/ kg-1) than skMLCK-/- (25.97 ± 1.02 W/ kg-1), (p < .05). No significant differences in optimal velocity for peak power were found between conditions and genotypes (p > .05). Analysis with Urea Glycerol PAGE determined that RLC phosphate content had been elevated in WT muscles from 8 to 63 % while minimal changes were observed in skMLCK-/- muscles: 3 and 8 %, respectively. Therefore, the lack of stimulation induced increase in RLC phosphate content resulted in a ~40 % smaller enhancement of mean power in skMLCK-/-. The increase in power output in WT mice suggests that RLC phosphorylation is a major potentiating component required for achieving peak muscle performance during brief high frequency concentric contractions.