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Short option positions carry significant risk of losses well in excess of 100 per cent of the initial option price. Margin requirements associated with such positions are therefore considerable. The purpose of this paper is to develop a methodology for calculating margin requirement‐based option portfolio returns that realistically represent the returns realized by investors, and to demonstrate the effects of this methodology on analyses of option returns.

A methodology is developed for calculating margin requirement‐based short option portfolio returns.

Accounting for margin requirements reduces the returns of simple short option strategies by up to 92 per cent compared to the price return. In long/short portfolio analyses, use of margin requirement returns necessitates additional methodological adjustments to ensure that unwanted volatility risk is properly hedged.

The result is a portfolio return that more accurately represents the return realized by investors, and increased power to detect cross‐sectional patterns in option returns.

The purpose of this paper is to propose a new dynamic margin setting method for margin buying in China and evaluate the validity of its performance with the current margin system adopted by stock exchanges in extreme episodes.

This paper adopts the dynamic conceptual model of Huang et al. (2012) (which is based on Figlewski (1984)) but incorporates Markov chain to describe the data generation process of stock price changes. By applying the model to margin buying contracts for the period of March 16, 2018, to May 2, 2018 (baseline study) and June 15, 2015, to July 27, 2015 (robustness test), the model’s superiority to the current margin system adopted by stock exchanges is also tested.

The paper has several important findings. First, the margins derived by this system vary with market conditions, rising (declining) when stock prices go down (up), and are generally lower than the requirements imposed by stock exchanges. Second, this margin system induces lower overall percentage of costs than that adopted by stock exchanges. Third, parameter estimation plays an important role on shaping empirical results.

The primary limitation of this paper lies in the fact that it does not solve the issue of determining optimal parameters of the Markov chain model. On the implication of findings, policy-makers and regulators on supervising margin buying activities may need a tune-up on the current margin system which features static margin requirements. Dynamic margins that incorporate market factors are virtually useful to balance the trade-off between liquidity and prudence.

To the best of the authors’ knowledge, this study is the first of its kind to develop a dynamic margin setting method for margin buying in China, aiming to balance the trade-off between liquidity and prudence. It not only takes into account the uniqueness of Chinese markets but also allows for time variations in both initial and maintenance margins.

The purpose of this paper is to investigate whether factor sensitivities of margins of bank-issued warrants depend on issuers’ credit risk during the period of economic turmoil between January 2008 and June 2010.

Therefore, first, Fama–MacBeth estimations were applied and it was demonstrate that the sensitivities of margins in terms of time to maturity and moneyness vary substantially over time; the average outcomes are similar to the results of classical pooled estimations.

Then, time-series tests were used and it was found that the steepness of the issuers’ credit default swap (CDS) spread curves correlates negatively with the time-to-maturity sensitivities as well as with the explanatory power of Fama–MacBeth estimations.

These findings indicate that the life-cycle hypothesis is weakened when the issuers’ CDS spread curves become steeper.

Thus, this study offers a new approach to gain insights into the role of issuers’ credit risk on price setting behavior.

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued in October, November, and December 2010.

The paper provides excerpts from FINRA Regulatory Notice 10‐45, Margin and Extension of Time Requests; 10‐51, Commodity Futures‐Linked Securities; 10‐57, Funding and Liquidity Risk Management Practices; and 10‐61, Independent Verification of Assets.

Regulatory Notice 10‐45: FINRA Rule 4210 rule promulgates the margin requirements that determine the amount of collateral customers are expected to maintain in their margin accounts, including strategy‐based margin accounts and portfolio margin accounts; FINRA Rule 4220 sets forth the requirements for daily recordkeeping of initial and maintenance margin calls that are issued pursuant to Regulation T and the margin rules. Notice10‐51: Firms that offer commodity futures‐linked securities are reminded that they must ensure that communications with the public about these securities are fair and balanced, that recommendations to customers are suitable, and that their registered representatives adequately understand and are able to inform their customers about these securities before they recommend them. Notice 10‐57: FINRA expects broker‐dealers to develop and maintain robust funding and liquidity risk management practices to prepare for adverse circumstances. Notice 61: The SEC has approved and FINRA has adopted new FINRA Rule 4160 to strengthen its ability to independently verify assets maintained by a member at a non‐member financial institution.

These are direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends. The FINRA staff is aware of this summary but has neither reviewed nor edited it. For further detail as well as other useful information, the reader should visit www.finra.org

The purpose of this paper is to extend the Du Pont method by connecting productivity and profitability through financial statements focusing on the two most common productivity indicators for companies: total factor productivity (TFP) and labour productivity.

The first part of the paper uses a deductive approach to obtain a new productivity rate of return. The second part applies the methodology of financial statements analysis to develop an empirical application of the findings.

The main finding is a functional relationship among the return on operating assets (ROOA), TFP and labour productivity. From it, the paper obtains a productivity rate of return that synthesizes both productivity measures. The ROOA is broken down into the sum of three parts: productivity, price change, and a crossed effect between turnover and price change.

The model developed in this paper enables analysts and managers to deepen in the causes of margin and turnover and, thus, in the causes of ROOA. To the extent that the separation between productivity and price change effects adds clarity to the knowledge of the causes of ROOA, it creates, at the same time a basis for making more precise decisions in order to improve corporate performance.

This paper differs from other studies by presenting the return of operating assets as a variable that depends on productivity ratios. Financial statement analysis has only occasionally incorporated productivity measures among the variables regarded as the drivers of a companys economic performance.

The purpose of this paper is to investigate the levels of extensive (wider set of goods) and intensive (larger quantities of each good) margins for 126 countries grouped by income and development hierarchies.

Analysis of variance and the coefficient of variation were used to find similarities and differences between and within the groups of countries.

Results show that the extensive margin accounts for a large share of exports of rich countries.

This paper highlights export margins (extensive and intensive) for groups of countries.

The purpose of this paper is to provide the current state of knowledge about the Flash Crash. It has been one of the remarkable events of the decade and its causes are still a matter of debate.

This paper reviews the literature since the early days to most recent findings, and critically compares the most important hypotheses about the possible causes of the crisis.

Among the causes of the Flash Crash, the literature has propsed the following: a large selling program triggering the sales wave, small but not negligible delays suffered by the exchange computers, the micro-structure of the financial markets, the price fall leading to margin cover and forced sales, some types of feedback loops leading to downward price spiral, stop-loss orders coupled with scarce liquidity that triggered price reduction. On its turn leading to further stop-loss activation, the use of Intermarket Sweep Orders, that is, orders that sacrificed search for the best price to speed of execution, and dumb algorithms.

The results of the previous section are condensed in a set of policy implications and recommendations.

We find evidence that the runs on banks and trust companies in the Panic of 1907 were linked to the Bank of England’s contractionary monetary policy actions taken in 1906 and 1907 through the medium of copper prices. Results from our vector autoregressive models and copper stockpile data support our argument that a copper commodity price channel may have been active in transmitting the Bank’s policy to the New York markets. Archival evidence suggests that the plunge in copper prices may have partially triggered both the initiation and the failure of an attempt to corner the shares of United Copper, and in turn, the bank and trust company runs related to that transaction’s failure. We suggest that the substantial short-term uncertainties accompanying the development of the copper-intensive electrical and telecommunications industries likely played a role in the plunge in copper prices. Additionally, we find evidence that the copper price transmission mechanism was also likely active in five other countries that year. While we do not argue that copper caused the 1907 crisis, we suggest that it was an active policy transmission channel amplifying the classic effect that was already spreading through the money market channel. If the bust in copper prices partially triggered the 1907 panic, then it provides additional evidence that contractionary monetary policy may have had an unintended, adverse consequence of contributing to a bank panic and, therefore, supports other recent findings that monetary policy deliberations might benefit from considering the policy impact on asset prices.

There is limited discussion in the literature of the problems associated with constructing stress tests. The Credit Crunch has revealed that attention simply to haircuts to asset values and resulting margin calls is insufficient. The purpose of this paper is to explore additional avenues for stress testing.

The paper is largely discursive.

Stress tests must look into the debt position of the firm, as well as its position and credit exposures. Not only the volume of debt but its maturity structure, callability and the indentures attached to it are extremely important.

The paper is geared more toward management and practitioners than to academic researchers. Implications for the analysis of corporate strategy are significant.

Stress testing is essential to the confident continuance of firms.

So much of the work in this area is proprietary and so little has been published on it.