The Board of Governors of the Federal Reserve System establishes initial margin requirements under Regulations T, U, and X. Recent margin loan increases, both in aggregate value and relative to market capitalization, have rekindled the debate about using margin requirements as an instrument to affect the prices of common stocks. Proponents of a more active margin requirement policy see the regulations as instruments for affecting the level and volatility of stock prices by influencing investors' demand for common stocks. Others believe that the announcement effects of increased margin requirements would have a stabilizing effect on the stock market and on the economy. ; This article discusses the historical background, accounting mechanics, regulation, and economic principles of margin lending. The author analyzes the data on the volume of margin loans, and he describes the history and practice of margin requirements as well the accounting framework. He assesses the extent to which initial margin requirements restrict the amount of margin lending, and he reviews the economics of margin loans, focusing on margin loans to the customers of broker-dealers. The author also develops a model of the link between the value of the put option embedded in margin loans and the margin loan rate, which he applies to determine the characteristics that should explain the high margin loan rates that typically prevail.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Did you know? All full texts are decentralized with the publishers, none reside on this server, thus making it possible to offer this service for free to all parties.