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Broker-dealer Leverage and the Stock Market

Author

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  • Apostolos Serletis

    (University of Calgary)

  • Khandokar Istiak

    (University of South Alabama)

Abstract

This paper employs linear and nonlinear causality tests to examine (for the first time) the dynamic relation between broker-dealer leverage and the stock market in the United States, using quarterly data since 1967. We find significant linear causality from the stock market to broker-dealer leverage and a nonlinear feedback from broker-dealer leverage to the stock market, supporting the view that the macro economy is highly nonlinear. This bidirectional causality shows that a stock market crash might happen long before a fall in fundamental asset values.

Suggested Citation

  • Apostolos Serletis & Khandokar Istiak, 2018. "Broker-dealer Leverage and the Stock Market," Open Economies Review, Springer, vol. 29(2), pages 215-222, April.
    • Handle: RePEc:kap:openec:v:29:y:2018:i:2:d:10.1007_s11079-017-9448-x
    DOI: 10.1007/s11079-017-9448-x
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    References listed on IDEAS

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    Cited by:

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    2. M. Iqbal Ahmed & Quazi Fidia Farah, 2021. "Adjustment dynamics between broker–dealer leverage and stock market: a threshold cointegration analysis," Empirical Economics, Springer, vol. 61(1), pages 121-144, July.

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    More about this item

    Keywords

    Broker-dealer leverage; Nonlinear causality; Nonlinearities;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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