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Does portfolio margining make borrowing more attractive?

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  • Matsypura, Dmytro
  • Pauwels, Laurent L.

Abstract

This paper investigates the effects of a change in the margin rules of the U.S. financial securities markets. These rules determine how much investors can borrow to leverage their investments. Since the 1929 stock market crash, margin loans have been tightly regulated by the Securities and Exchange Act Regulation T. Between 2005 and 2008, the Securities and Exchange Commission modified these margin rules because they were perceived as not adequately reflecting investment risk. The amended rules have made it more attractive for investors to borrow by opening new margin accounts and diversifying their investment positions. This paper tests the hypothesis that the change in the margin rules has increased margin debt across the U.S. securities markets. It provides statistical evidence that this structural change can be dated to the amendments in the rules.

Suggested Citation

  • Matsypura, Dmytro & Pauwels, Laurent L., 2016. "Does portfolio margining make borrowing more attractive?," International Review of Financial Analysis, Elsevier, vol. 43(C), pages 128-134.
    • Handle: RePEc:eee:finana:v:43:y:2016:i:c:p:128-134
    DOI: 10.1016/j.irfa.2015.11.006
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    More about this item

    Keywords

    Margin debt; Margin requirements; Portfolio margining; Financial regulations; Structural change; U.S. securities markets;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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