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Do Margin Requirements Affect Asset Prices?

Author

Listed:
  • Bruno Cara Giovannetti

    ()

  • Guilherme B. Martins

    ()

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.

Suggested Citation

  • Bruno Cara Giovannetti & Guilherme B. Martins, 2012. "Do Margin Requirements Affect Asset Prices?," Working Papers, Department of Economics 2012_17, University of São Paulo (FEA-USP).
  • Handle: RePEc:spa:wpaper:2012wpecon17
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    File URL: http://www.repec.eae.fea.usp.br/documentos/GiovannettiMartins17WP.pdf
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    References listed on IDEAS

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    5. Adam Ashcraft & Nicolae Gârleanu & Lasse Heje Pedersen, 2011. "Two Monetary Tools: Interest Rates and Haircuts," NBER Chapters,in: NBER Macroeconomics Annual 2010, Volume 25, pages 143-180 National Bureau of Economic Research, Inc.
    6. 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.
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    More about this item

    Keywords

    asset prices; margin requirements; capital constraint;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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