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Do Margin Requirements Affect Asset Prices?

  • Bruno Cara Giovannetti

    ()

  • Guilherme B. Martins

    ()

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    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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    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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    1. Lasse Heje Pederson & Markus K Brunnermeier, 2007. "Market Liquidity and Funding Liquidity," FMG Discussion Papers dp580, Financial Markets Group.
    2. 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.
    3. Shanken, Jay, 1990. "Intertemporal asset pricing : An Empirical Investigation," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 99-120.
    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. Yacine Ait-Sahalia & Jonathan A. Parker & Motohiro Yogo, 2002. "Luxury Goods and the Equity Premium," Working Papers 145, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
    6. N. Gregory Mankiw & Stephen P. Zeldes, 1990. "The Consumption of Stockholders and Non-Stockholders," NBER Working Papers 3402, National Bureau of Economic Research, Inc.
    7. Luboš Pástor & Robert F. Stambaugh, . "Liquidity Risk and Expected Stock Returns," CRSP working papers 531, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    8. 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.
    9. 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.
    10. Ang, Andrew & Gorovyy, Sergiy & van Inwegen, Gregory B., 2011. "Hedge fund leverage," Journal of Financial Economics, Elsevier, vol. 102(1), pages 102-126, October.
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