This 47 page paper assesses the potential impact of margin trading on the Russian stock markets. The paper gives an introduction with aims and objectives and the research methodology based on examining existing literature and models and applying them to modern Russia. An in-depth literature review examines the concept of margin trading and the different theories regarding its impact on the volatility of stock markets. The paper goes on to examine the development of the investment environment within Russia in order to determine the types of investors which at present within the market to facilitate the application of margin trading theories to this developing market. The paper finishes with a conclusion arguing that margin trading is likely to have a negative effect on the Russian stock markets due to the investment culture, stock market pressures and general trading patterns which are already present with in the stock market. The bibliography cites 34 sources.
Name of Research Paper File: TS14_TEmargintr.rtf
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Trading Is Used 14 3.2.1 The Purchase Process 14 3.2.2 The Margin Call 16 3.2.3 The Attraction and Risks of Margin Trading 18 3.3 Potential Consequences of Margin Trading 20 3.3.1 Pyramiding and Depyramiding; The Arguments for a Negative Impact 22
3.3.2 The Argument for a Stabilizing or Positive Impact 24 3.3.3 Historical Examples of Investor Behavior 27 3.4 Controls 33 3.5 Explaining the Discrepancies 36 4. Russia 38 4.1 Historic Development of the Commercial Environment and Market Reforms 39 4.2 The Russian Stock
Market 46 5. Conclusion 47 References 52 Executive Summary
Margin trading takes place in a large number of exchanges, the impact it has on the volatility within the stock exchanges is subject to discussion. Margin loans have
been attributed as a major cause to the 1929 crash, but countries such as China believe that margin trading presents a great opportunity to increase investment in commerce.
The majority of evidence gathered appears to back the idea that margin trading; leveraging capital by utilizing loans from brokers to buy shares, has the
potential to increase the level of volatility on stock exchanges through phenomena such as pyramiding and depyramiding. However, there is not a full consensus regarding the evidence. Others argue that
margin trading can increase stability and reduce volatility. In order to reduce volatility regulators have introduced margin requirements; a limit on the amount which can be borrowed by a potential
investor compared to the amount of cash that they are investing. The majority of research has taken place within developed countries. Therefore,
there is little research that can be utilized by countries such as Russia if they wish to assess the way that their stock exchanges are likely to be impacted by
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