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Do Margin Requirements Affect Asset Prices?

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  • Bruno Cara Giovannetti

    ()

  • Guilherme B. Martins

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    Abstract

    Some recent theoretical papers show that margin requirements can affect asset prices. Such results are important, for example, to understand the unconventional polices implemented by the Fed during the financial crisis of 2007-2010. However, empirical evidence remains scarce. The present article contributes to filling this gap. It shows that an aggregate margin factor predicts future excess returns of the S&P 500, and that stocks with high exposures to the ted spread pay on average higher risk-adjusted returns. Both findings are in accordance with the theory that relates margins and prices.

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    File URL: http://www.fea.usp.br/feaecon/RePEc/documentos/GiovannettiMartins17WP.pdf
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    Bibliographic Info

    Paper provided by University of São Paulo (FEA-USP) in its series Working Papers, Department of Economics with number 2012_17.

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    Date of creation: 11 Sep 2012
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    Handle: RePEc:spa:wpaper:2012wpecon17

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    Related research

    Keywords: asset prices; margin requirements; capital constraint;

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    1. Yacine A�T-Sahalia & Jonathan A. Parker & Motohiro Yogo, 2004. "Luxury Goods and the Equity Premium," Journal of Finance, American Finance Association, vol. 59(6), pages 2959-3004, December.
    2. Lasse Heje Pederson & Markus K Brunnermeier, 2007. "Market Liquidity and Funding Liquidity," FMG Discussion Papers dp580, Financial Markets Group.
    3. Mankiw, N. Gregory & Zeldes, Stephen P., 1991. "The consumption of stockholders and nonstockholders," Journal of Financial Economics, Elsevier, vol. 29(1), pages 97-112, March.
    4. Jonathan A. Parker, 2001. "The Consumption Risk of the Stock Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2), pages 279-348.
    5. Nicolae G�rleanu & Lasse Heje Pedersen, 2011. "Margin-based Asset Pricing and Deviations from the Law of One Price," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1980-2022.
    6. Adam Ashcraft & Nicolae Gârleanu & Lasse Heje Pedersen, 2010. "Two Monetary Tools: Interest Rates and Haircuts," NBER Working Papers 16337, National Bureau of Economic Research, Inc.
    7. Ang, Andrew & Gorovyy, Sergiy & van Inwegen, Gregory B., 2011. "Hedge fund leverage," Journal of Financial Economics, Elsevier, vol. 102(1), pages 102-126, October.
    8. Christopher J. Malloy & Tobias J. Moskowitz & Annette Vissing-Jørgensen, 2009. "Long-Run Stockholder Consumption Risk and Asset Returns," Journal of Finance, American Finance Association, vol. 64(6), pages 2427-2479, December.
    9. Shanken, Jay, 1990. "Intertemporal asset pricing : An Empirical Investigation," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 99-120.
    10. Lubos Pastor & Robert F. Stambaugh, 2001. "Liquidity Risk and Expected Stock Returns," NBER Working Papers 8462, National Bureau of Economic Research, Inc.
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