Animal spirits, margin requirements, and stock price volatility
AbstractA simple overlapping generations model is used to characterize the effects of initial margin requirements in the volatility of risky asset prices. Investors are assumed to exhibit heterogenous preferences for risk-bearing, the distribution of which evolves stochastically across generations. This framework is used to show that imposing a binding initial marginal requirement may either increase or decrease stock price volatility, depending upon the microeconomic structure behind fluctuations in economywide average risk-bearing propensity. The ambiguous effect on volatility similarly arises when the source of heterogeneity is noise trader beliefs. Copyright 1991 by American Finance Association.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 127.
Date of creation: 1990
Date of revision:
Other versions of this item:
- Kupiec, Paul H & Sharpe, Steven A, 1991. " Animal Spirits, Margin Requirements, and Stock Price Volatility," Journal of Finance, American Finance Association, vol. 46(2), pages 717-31, June.
- 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.).
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- Sheng Guo, 2014. "Margin Requirements and Portfolio Optimization: A Geometric Approach," Working Papers 1406, Florida International University, Department of Economics.
- Peter Fortune, 2001. "Margin lending and stock market volatility," New England Economic Review, Federal Reserve Bank of Boston, pages 3-25.
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