Margin Requirements and Equilibrium Asset Prices
AbstractThis paper studies the effect of margin requirements on asset prices, trading volume and investors' welfare in a general equilibrium asset pricing model where investors differ in their degree of risk aversion. In the stationary equilibrium of the model binding margin requirements decrease the riskless rate and increase its volatility, as well as stock trading volume. Contrary to previous partial equilibrium results, stock prices are not affected by margin requirements. Small changes in margin requirements produce large effects on the long-run distribution of wealth among investors. From a welfare perspective margin requirements might benefit the constrained less risk averse investors, while they always make more risk averse investors worse-off.
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Bibliographic InfoPaper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2001-E5.
Date of creation: Dec 2000
Date of revision:
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Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/
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- NEP-ALL-2002-04-03 (All new papers)
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