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Margin Requirements and Equilibrium Asset Prices

  • Daniele Coen-Pirani

This paper studies the effect of margin requirements on asset prices, trading volume and investors' welfare in a general equilibrium asset pricing model where investors differ in their degree of risk aversion. In the stationary equilibrium of the model binding margin requirements decrease the riskless rate and increase its volatility, as well as stock trading volume. Contrary to previous partial equilibrium results, stock prices are not affected by margin requirements. Small changes in margin requirements produce large effects on the long-run distribution of wealth among investors. From a welfare perspective margin requirements might benefit the constrained less risk averse investors, while they always make more risk averse investors worse-off.

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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2001-E5.

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Date of creation: Dec 2000
Date of revision:
Handle: RePEc:cmu:gsiawp:274394073
Contact details of provider: Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
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  3. Coen-Pirani, Daniele, 2004. "Effects Of Differences In Risk Aversion On The Distribution Of Wealth," Macroeconomic Dynamics, Cambridge University Press, vol. 8(05), pages 617-632, November.
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  8. Schwert, C.W., 1989. "Margin Requirements And Stock Volatility," Papers t6, Columbia - Center for Futures Markets.
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  11. Jérôme B. Detemple & Shashidhar Murthy, 1997. "Equilibrium Asset Prices and No-Arbitrage with Portfolio Constraints," CIRANO Working Papers 97s-12, CIRANO.
  12. Nobuhiro Kiyotaki & John Moore, 1995. "Credit Cycles," NBER Working Papers 5083, National Bureau of Economic Research, Inc.
  13. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
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