Margin requirements, volatility, and the transitory component of stock prices
AbstractOfficial margin requirements in the U.S. stock market were established in October 1934 to limit the amount of credit available for the purpose of buying stocks. Since then, higher or rising margin requirements are associated with lower stock price volatility, lower excess volatility, and smaller deviations of stock prices from their fundamental values. The results hold throughout the post-1934 period and are not very sensitive to the exclusion of the turbulent depression years from the sample. Thus, margin requirements seem to be an effective policy tool in curbing destabilizing speculation. Copyright 1990 by American Economic Association.
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Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Research Paper with number 8818.
Date of creation: 1988
Date of revision:
Other versions of this item:
- 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.
- Hardouvelis, G.A., 1988. "Margin Requirements, Volatility, And The Transitory Component Of Stock Prices," Papers fb-_88-38, Columbia - Graduate School of Business.
- Gikas A. Hardouvelis, 1989. "Margin requirements, volatility and the transitory component of stock prices," Research Paper 8909, Federal Reserve Bank of New York.
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