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Riding the Credit Boom

Author

Listed:
  • Christopher Hansman
  • Harrison Hong
  • Wenxi Jiang
  • Yu-Jane Liu
  • Juan-Juan Meng

Abstract

Research on leverage and asset-price fluctuations focuses on the direct effect of lax bank lending enabling financially-constrained investors to take excessive risks. Ignored are unconstrained investors speculating on higher prices during credit booms. To identify these two effects, we utilize China's staggered liberalization of stock-margin lending from 2010-2015—which encouraged a bank/brokerage-credit-fueled stock-market bubble. The direct effect is a 25 cent increase in a stock's market capitalization for each dollar of margin debt. Unconstrained investors led to an even larger increase in valuations of an additional 32 cents as they speculated on stocks likely to qualify for lending.

Suggested Citation

  • Christopher Hansman & Harrison Hong & Wenxi Jiang & Yu-Jane Liu & Juan-Juan Meng, 2018. "Riding the Credit Boom," NBER Working Papers 24586, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:24586
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G4 - Financial Economics - - Behavioral Finance

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