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The Differential Impact of Federal Reserve Margin Requirements on Stock Return Volatility

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  • Kumar, Raman
  • Ferris, Stephen P
  • Chance, Don M

Abstract

This study examines the effect of changes in margin requirements on stock price volatility. The authors examine the possibility that the impact of margin requirements varies with a stock's degree of speculative interest. Using four alternative measures of speculative interest, the authors divide their sample into ten portfolios. They find no consistent evidence of a relationship between margin requirements and changes in volatility for any portfolio. The inconsistent and often contradictory results produced by these changes question its usefulness by Federal Reserve decisionmakers. Copyright 1991 by MIT Press.

Suggested Citation

  • Kumar, Raman & Ferris, Stephen P & Chance, Don M, 1991. "The Differential Impact of Federal Reserve Margin Requirements on Stock Return Volatility," The Financial Review, Eastern Finance Association, vol. 26(3), pages 343-366, August.
    • Handle: RePEc:bla:finrev:v:26:y:1991:i:3:p:343-66
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    Cited by:

    1. Hsu, Yenshan, 1996. "Margin requirements and stock market volatility Another look at the case of Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 4(4), pages 409-419, December.
    2. Sheng Guo, 2014. "Margin requirements and portfolio optimization: A geometric approach," Journal of Asset Management, Palgrave Macmillan, vol. 15(3), pages 191-204, June.
    3. John H. Huston & Roger W. Spencer, 2009. "Speculative excess and the Federal Reserve's response," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 26(1), pages 46-61, March.
    4. Zhang, Ting & Li, Honggang, 2013. "Buying on margin, selling short in an agent-based market model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(18), pages 4075-4082.
    5. Domian, Dale L. & Racine, Marie D., 2006. "An empirical analysis of margin debt," International Review of Economics & Finance, Elsevier, vol. 15(2), pages 151-163.
    6. Alexander, Carol & Kaeck, Andreas & Sumawong, Anannit, 2019. "A parsimonious parametric model for generating margin requirements for futures," European Journal of Operational Research, Elsevier, vol. 273(1), pages 31-43.

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