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 91.
Date of creation: 1989
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 & Steven Sharpe, 1990. "Animal spirits, margin requirements, and stock price volatility," Finance and Economics Discussion Series 127, Board of Governors of the Federal Reserve System (U.S.).
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- 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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