The Asymmetric Relation Between Margin Requirements and Stock Market Volatility Across Bull and Bear Markets
AbstractEGARCH-M models based on a daily, weekly, and monthly S&P–500 returns over the period October 1934–September 1994 reveal that higher margins have a much stronger negative relation to subsequent volatility in bull markets than in bear markets. Higher margins are also negatively related to subsequent conditional stock returns, apparently because they reduce systemic risk. These empirical regularities are consistent with the pyramiding-depyramiding framework of stock prices that US Congress had in mind when it instituted margin regulation in 1934, and suggest that a prudential rule for setting margins over time would be to raise them during periods of unwarranted price increases and to lower them immediately after large declines in stock prices.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1746.
Date of creation: Nov 1997
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Georgy Chabakauri, 2012. "Asset Pricing with Heterogeneous Investors and Portfolio Constraints," FMG Discussion Papers dp707, Financial Markets Group.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.