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Financial leverage and market volatility with diverse beliefs

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  • Wen-Chung Guo
  • Frank Wang
  • Ho-Mou Wu

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    File URL: http://hdl.handle.net/10.1007/s00199-010-0548-8
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    Bibliographic Info

    Article provided by Springer in its journal Economic Theory.

    Volume (Year): 47 (2011)
    Issue (Month): 2 (June)
    Pages: 337-364

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    Handle: RePEc:spr:joecth:v:47:y:2011:i:2:p:337-364

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    Related research

    Keywords: Financial leverage; Diverse beliefs; Stock price volatility; Leverage effect; Pyramiding/depyramiding effect; D84; G12; G18;

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    1. Harrison, J Michael & Kreps, David M, 1978. "Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations," The Quarterly Journal of Economics, MIT Press, vol. 92(2), pages 323-36, May.
    2. John Geanakoplos & Ana Fostel, 2008. "Leverage Cycles and the Anxious Economy," American Economic Review, American Economic Association, vol. 98(4), pages 1211-44, September.
    3. Paul H. Kupiec, 1997. "Margin Requirements, Volatility, and Market Integrity: What Have We Learned Since The Crash?," FMG Special Papers sp97, Financial Markets Group.
    4. Brunnermeier, Markus K & Pedersen, Lasse Heje, 2007. "Market Liquidity and Funding Liquidity," CEPR Discussion Papers 6179, C.E.P.R. Discussion Papers.
    5. Hart, Oliver D & Kreps, David M, 1986. "Price Destabilizing Speculation," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 927-52, October.
    6. Feiger, George, 1976. "What Is Speculation?," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 677-87, November.
    7. Daniele Coen-Pirani, 2000. "Margin Requirements and Equilibrium Asset Prices," GSIA Working Papers 2001-E5, Carnegie Mellon University, Tepper School of Business.
    8. Hardouvelis, Gikas A, 1990. "Margin Requirements, Volatility, and the Transitory Components of Stock Prices," American Economic Review, American Economic Association, vol. 80(4), pages 736-62, September.
    9. Hardouvelis, Gikas A & Peristiani, Stavros, 1992. "Margin Requirements, Speculative Trading, and Stock Price Fluctuations: The Case of Japan," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1333-70, November.
    10. Stephen Morris, 1996. "Speculative investor behavior and learning," Working Papers 96-5, Federal Reserve Bank of Philadelphia.
    11. Harris, Milton & Raviv, Artur, 1993. "Differences of Opinion Make a Horse Race," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 473-506.
    12. Paul Kupiec & Steve Sharpe, 1989. "Animal spirits, margin requirements, and stock price volatility," Finance and Economics Discussion Series 91, Board of Governors of the Federal Reserve System (U.S.).
    13. Kurz, Mordecai, 1994. "On Rational Belief Equilibria," Economic Theory, Springer, vol. 4(6), pages 859-76, October.
    14. Leach, John, 1991. "Rational Speculation," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 131-44, February.
    15. Miller, Edward M, 1977. "Risk, Uncertainty, and Divergence of Opinion," Journal of Finance, American Finance Association, vol. 32(4), pages 1151-68, September.
    16. Varian, Hal R, 1985. " Divergence of Opinion in Complete Markets: A Note," Journal of Finance, American Finance Association, vol. 40(1), pages 309-17, March.
    17. Gikas A. Hardouvelis & Panayiotis Theodossiou, 2002. "The Asymmetric Relation Between Initial Margin Requirements and Stock Market Volatility Across Bull and Bear Markets," Review of Financial Studies, Society for Financial Studies, vol. 15(5), pages 1525-1560.
    18. Thomas Gale Moore, 1966. "Stock Market Margin Requirements," Journal of Political Economy, University of Chicago Press, vol. 74, pages 158.
    19. Biais, Bruno & Gollier, Christian, 1997. "Trade Credit and Credit Rationing," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 903-37.
    20. Seguin, Paul J., 1990. "Stock volatility and margin trading," Journal of Monetary Economics, Elsevier, vol. 26(1), pages 101-121, August.
    21. Kohn, Meir, 1978. "Competitive Speculation," Econometrica, Econometric Society, vol. 46(5), pages 1061-76, September.
    22. Jose A. Scheinkman & Wei Xiong, 2003. "Overconfidence and Speculative Bubbles," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1183-1219, December.
    23. Hirshleifer, Jack, 1975. "Speculation and Equilibrium: Information, Risk, and Markets," The Quarterly Journal of Economics, MIT Press, vol. 89(4), pages 519-42, November.
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    Cited by:
    1. Wen-Chung Guo & Sy-Ming Guu & Ting-Yun Chang, 2011. "Equilibrium Information Acquisition, Prediction Abilities and Asset Prices," Computational Economics, Society for Computational Economics, vol. 37(1), pages 89-111, January.
    2. Hiroyuki Nakata, 2013. "Welfare effects of short-sale constraints under heterogeneous beliefs," Economic Theory, Springer, vol. 53(2), pages 283-314, June.

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