We develop a model of asset trading with financial leverage in an economy with a continuum of investors. The investors are assumed to have diverse and rational beliefs in the sense of being compatible with observed data. We show that a reduction in the margin requirement may cause the stock...

It is an interesting question that if the implied volatility can perfectly predict the fluctuations of the future share market, and how many days of the changes the implied volatility can effectively predict.The purpose of this paper is to find the answers of the above questions. We calculate...