Abstract:The economics profession appears to have been unaware of the long build-up to the current worldwide financial crisis and to have significantly underestimated its dimensions once it started to unfold. In our view, this lack of understanding is due to a misallocation of research efforts in economics. We trace the deeper roots of this failure to the profession's insistence on constructing models that, by design, disregard the key elements driving outcomes in real-world markets. The economics profession has failed in communicating the limitations, weaknesses, and even dangers of its preferred models to the public. This state of affairs makes clear the need for a major reorientation of focus in the research economists undertake, as well as for the establishment of an ethical code that would ask economists to understand and communicate the limitations and potential misuses of their models.
n recent years, futures markets have received an increasing amount of attention I from both the trading public and from finance scholars. One important characteristic of the futures market continues to stand out as an area that has not received sufficient attention-the establishment, management, and function of margins on futures contracts. This lack of attention to futures margins probably stems from the fact that futures margins behave very differently from margins in the stock market.In contrast to the operation of credit margins in the stock market, a futures margin is not a partial payment for the position being undertaken. Instead, the futures margin is a performance bond which serves as collateral or as a good faith deposit given by the trader to the broker. Also, in contrast to the stock market, futures margins are not set by any external agency, such as the Federal Reserve Board that sets margin policy for stock trading. ' Instead, futures margins are set by the futures exchanges and by brokers. Furthermore, there are several different kinds of margins in the futures market. These include the initial margin, maintenance margin, hedging margin, and spreading margin.This article seeks to explain margin setting and management behavior by the futures exchanges and to contribute to the theory of margins by building on the previous work
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