✦ LIBER ✦

Margin requirements and stock volatility

✍ Scribed by G. William Schwert

Publisher: Springer
Year: 1989
Tongue: English
Weight: 667 KB
Volume: 3
Category: Article
ISSN: 0920-8550
DOI: 10.1007/bf00122799

No coin nor oath required. For personal study only.

✦ Synopsis

Since 1934 the Federal Reserve Board has had the power to set separate limits on the amount of credit that can be extended to purchasers of common stock. There has been much recent debate about the efficacy of these margin regulations. This article argues that the Fed has responded to increases in stock prices by raising margin requirements. The increase in prices has been associated with a decrease in volatility. There is no evidence that changes in margin requirements reduce subsequent stock return volatility. Also, trading halts have not had much effect on volatility in the past. Trading halts that were associated with banking panics were associated with high stock return volatility, but halts without bank panics were not associated with high levels of volatility.

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