Animal Spirits, Margin Requirements, and Stock Price Volatility
A 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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Volume (Year): 46 (1991)
Issue (Month): 2 (June)
Pages: 717-31
| Handle: | RePEc:bla:jfinan:v:46:y:1991:i:2:p:717-31 |
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