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Rising bubbles by margin calls
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DOI：10.1016/j.frl.2024.106733.png)
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Abstract
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This paper examines price bubble formation in commodity markets driven by margin calls, highlighting mechanisms causing extreme price volatility. Analyzing Nickel, WTI Oil, Silver, Copper, Wheat, Corn, and Soybean, I test five hypotheses on leverage, liquidity reduction, and positive feedback loops using advanced detection methods like LPPLS and GSADF. Results show high leverage and margin calls amplify volatility through forced trades and speculation. Asymmetrical reactions and herding behavior further exacerbate bubbles, particularly under supply constraints. My findings stress the need for improved risk management and regulatory measures to curb leverage-driven volatility, enhancing market stability and resilience.
Keywords:
Bubbles
Crashes
Margin calls
Commodities
Speculation
GSADF
LPPLS
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